Customer Lifetime Value (CLV), also known as Lifetime Value of a Customer (LTV), is one of the most valuable eCommerce metrics out there, however it is also the least understood and utilized. Why is this? There are many reasons, but most stem from the fact that CLV can be difficult to calculate unless you are an advanced mathematician and have all of your variables.
These are just some of the formulas you encounter when doing a simple Google search for CLV calculations.
To help sort out this complicated subject, we’ve teamed up with our friends at Sweet Tooth, who are experts in the area of loyalty and customer lifetime value, to help breakdown the topic of Customer Lifetime Value, how to calculate, and what it means for your business.
To download the ebook, simply click here, or on the download button below. For a sneak peek at the content you’ll find inside, keep on reading!
What is Customer Lifetime Value (CLV)
aka Lifetime Value of a Customer (LTV)?
First, let’s cover the basics. What is Customer Lifetime Value (CLV) aka Lifetime Value of a Customer (LTV)?
“CLV is a prediction of how valuable a customer is going to be to your business over a specific period of time”
By knowing CLV, merchants are able to determine the value of each acquired customer to their store in the long run. Merchants also have the advantage and insight to knowing exactly what they should be spending on their advertising to acquire said customers, and which segments to target. The overall goal for merchants and retailers is to increase their CLV. Higher CLV means merchants are better able to retain customers and encourage them to purchase more.
Wouldn’t you like to know how much each of your customers are worth to your business? To know their true value? Wouldn’t you like to know how much to spend on your advertising given your certain set of customers? Sounds like an impossible thing to measure, or find out – but in reality it is quite possible.
Calculating Customer Lifetime Value
There are several ways to calculate Customer Lifetime Value, regardless of the method, the calculation usually has two out of a possible 3 characteristics, it can be simple, accurate, and/or inexpensive.
For example: you can have a simple and inexpensive way to calculate CLV, but it won’t be accurate; or it could be inexpensive and an accurate calculation, but it won’t be simple; or you can have an accurate and simple calculation, but it can be expensive.
In our ebook we walk through the three possibilities along with calculations, and resources:
- Simple & Inexpensive
- Accurate & Inexpensive
- Accurate & Simple
What can you do with Customer Lifetime Value?
The most value you can get with CLV is segmentation! When you segment your customers you gain valuable insight into which customers are the most profitable for you. Some of the segments we cover in the ebook are:
- Acquisition Channel
From channel sources, to customer characteristics, down to the actions they may take on your website, there is more than one way to calculate CLV. Merchants are able to use this insight to determine exactly what should be spent and through which channels to effectively acquire customers.