Customer Lifetime Value (CLTV or CLV)

November 6, 2018

Customer lifetime value (CLTV or CLV) is also known as lifetime value (LTV), and refers to the profit margin a company expects to earn over the entire time it has a business relationship with an average customer.

In order to gain a complete view of the customer lifetime value, you have to take into account all customer acquisition costs (CAC), sales and marketing expenses, operating expenses, and what it cost to manufacture or present your product/service.

Why CLTV is So Crucial to Growth

CLTV is important because it helps you figure out how much an average customer is worth to your company. Knowing the CLTV also helps you determine how much your brand and your app are worth.

The data gives you a chance to decide who your ideal targets are and whether you should be focusing on other, newer audiences or simply increase your efforts to upsell and encourage repeat in-app purchases with your current customers.

How to Calculate CLV

First, calculate the lifetime value by multiplying the average value of a sale, the average number of transactions, and the average customer retention period.

Customer Lifetime Value = (Average Value of Sale) × (Number of Transactions) × (Retention Time Period)

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