Customer Lifetime Value

CLTV analysis looks at how much each customer is worth to your company throughout its lifetime. The longer a customer continues to purchase from a company, the greater their lifetime value is.

When you know the LTV of a customer, you know how much money they spend with your business over a period of time.

Peel's Calculation

Net Sales - Product Costs divided by the number of customers in the cohort.

It is cumulative

Value of Customer Lifetime Value

TIME MATTERS - there is always a time component in the calculation - for who? & for what time period?

examples:

• All my customers - average 6 month LTV or 1 year LTV ...
• All the customers acquired in Feb 2021 or Dec 2020 customer their LTV at 1 year?

You'll immediately know how much you should // can spend to acquire the customer.

CLTV shows you how much money you should be spending on acquiring your customers because it tells you how much value they’ll bring to your business in the long run.

You'll know what customer profile -

• what product they bought,
• what channel they came from,
• ➕ all the attributes that define the customers (!!!)

that lead to the highest LTV customer!

With this information you'll test out ways to increase the LTV of your customer and identify the customer that spend more with you. You’ll be able to understand which customers you should be focusing on.

Find your best customers by segmenting by customers who buy a certain category of products as they might have a higher CLTV or who come in from a particular marketing channel -- so then you can allocate experiments to find more of those types of customers.

plus so much more....

To increase CLTV you need to drive repeat sales (⬆️ repurchase rate) & the amount each customer spends (⬆️ AOV).