2. Purchasing Frequency<\/strong> (f)<\/strong><\/h3>\n\n\n\n

The purchasing frequency is also very important when consider the lifetime value of your customer. This formula tells your business how much a customer will purchase from your business in a certain period of time.<\/p>\n\n\n\n

Understanding the purchase frequency can give you a better indication as to if your customers are returning. The more purchase frequency you have means your company will grow at a faster rate.<\/p>\n<\/div><\/div>\n\n\n\n

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3. Customer Value (CV)<\/strong><\/h3>\n\n\n\n

Customer value is the customer\u2019s average order value (AOV) multiplied by their purchase frequency (f). This will give the total value of the customer.<\/p>\n<\/div><\/div>\n\n\n\n

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4. Customer\u2019s Average Lifespan (t)<\/strong><\/h3>\n\n\n\n

Although Customer\u2019s average lifespan may be the hardest to calculate, it is considered to be a very important data point. A customer\u2019s average lifespan is the average time a customer remains active before they stop interacting with your business. For example, if a customer\u2019s first purchase and last purchase was 45 days, then that means the customer\u2019s average lifespan is 45.<\/p>\n<\/div><\/div>\n\n\n\n

How do you Calculate Customer Lifetime Value (CLV)?<\/strong><\/h2>\n\n\n\n

In simple terms, the most basic formula for calculating customer lifetime value is as follows:<\/p>\n\n\n\n

CLV =<\/strong> annual profit contribution per customer (CV) X average number of years as a customer (t)<\/strong><\/p>\n\n\n\n

Multiplying your customers annual value by how long their average lifespan is will give you the customers lifetime value.<\/p>\n\n\n\n

This is one of the most important numbers to know for your business<\/strong> because it can tell you how much you should be spending to acquire new people. It also helps in knowing how much you should pay to retain them as a customer.<\/p>\n\n\n\n

Calculating customer lifetime value doesn\u2019t have to be hard. The average order value explains how much is spent at your business when each purchase is made. Looking into your AOV is essential because whether it gives you an idea of whether you should be increasing your order frequency or average order value<\/strong>.<\/p>\n\n\n\n

It\u2019s important to note that different businesses have different customer lifespans. A reasonable timespan for customers to remain active is 1-3 years.<\/p>\n\n\n\n

Segmentation and Margin<\/strong><\/h2>\n\n\n\n

To add more meaning into your customer\u2019s lifetime value, you can include the margin you are going to see over the course of the shopper\u2019s life. This means that your business can know both the actual profit and gain form each new customer and the revenue you receive.<\/p>\n\n\n\n

The formula including margin is:<\/p>\n\n\n\n

CLV = Average Order Value (AOV) X Purchase Frequency (f) X Margin (m)<\/strong><\/p>\n\n\n\n

Segmentation on the other hand divides your customers into more specific characteristics. This can be very helpful in allowing your business to see how profitable different types of customers are in your store.<\/p>\n\n\n\n

To learn more about calculating lifetime value, check out the infographic of Starbucks CLV.<\/p>\n\n\n\n

<\/a><\/figure>\n\n\n\n

Other Benefits of Knowing Your CLV Metric<\/strong><\/h2>\n\n\n\n

Tracking lifetime value can help predict how your business will do in the future. If your lifetime value is growing alongside steady marketing strategy signals, this means your business growing more profitable and your marketing efforts are paying off.<\/p>\n\n\n\n

Customer Retention<\/strong><\/h2>\n\n\n\n

The more value you bring as a business, the more likely it is for your customers to go back to do business with you. This is incredibly important to growing your business and increasing your profit. Having a high customer retention rate can be due to great customer service, outstanding price, creating a warm atmosphere, and having the right marketing strategy. As a business, you should always strive to bring your customers unmatched value of your product and service.<\/p>\n\n\n\n

Conclusion<\/strong><\/h2>\n\n\n\n

As we said earlier, knowing your ROI is certainly important but just as important is understanding how to calculate your CLV. Your CLV gives you a better understanding of both current and future success as well as being an indicator as to what changes you should make and what your cost per customer acquisition should be.<\/p>\n\n\n\n

If you’re interested in getting a better understanding about how CLV works or want to find the right digital marketing agency<\/a> to help your business grow, contact us<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Marketing is an essential part to grow any type of business. However, since every marketing strategy is an investment, we know the first question many business owners ask is, \u201cwhat\u2019s my ROI going to be?\u201d While ROI is certainly important, understanding and calculating your customer lifetime value (CLV) is equally if not more important. No […]<\/p>\n","protected":false},"author":1,"featured_media":22646,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,7,9,10,11,12],"tags":[],"class_list":["post-21559","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-expert-insights","category-home-services","category-medical-healthcare","category-small-business","category-startup-business","category-wedding-venue"],"yoast_head":"\n