What does customer lifetime value (LTV) mean?
What is customer lifetime value (LTV)?
Lifetime value (LTV) is a financial metric that measures the total value that a customer is expected to generate over the course of their relationship with a business. It is calculated by multiplying the average value of a customer's purchases by the number of purchases they are expected to make over the course of their lifetime as a customer.
For example, if a customer is expected to make an average of 10 purchases per year at an average value of £100 per purchase, and the business expects them to be a customer for 5 years, their LTV would be £100 x 10 x 5 = £5,000.
Why does LTV matter?
LTV is an important metric for businesses, as it helps them to understand the value of their customer base and to identify opportunities to increase customer loyalty and retention. It is often used in conjunction with the customer acquisition cost (CAC), which is a measure of the cost of acquiring each new customer. By comparing LTV to CAC, businesses can determine whether their customer acquisition efforts are generating a positive return on investment.
Lifetime value (LTV) is a financial metric that measures the total value that a customer is expected to generate over the course of their relationship with a business. It is calculated by multiplying the average value of a customer's purchases by the number of purchases they are expected to make over the course of their lifetime as a customer.
For example, if a customer is expected to make an average of 10 purchases per year at an average value of £100 per purchase, and the business expects them to be a customer for 5 years, their LTV would be £100 x 10 x 5 = £5,000.
Why does LTV matter?
LTV is an important metric for businesses, as it helps them to understand the value of their customer base and to identify opportunities to increase customer loyalty and retention. It is often used in conjunction with the customer acquisition cost (CAC), which is a measure of the cost of acquiring each new customer. By comparing LTV to CAC, businesses can determine whether their customer acquisition efforts are generating a positive return on investment.
