CLV (Customer Life Value) or CLTV (Customer Lifetime Value) is a crucial parameter to check […]
CLV (Customer Life Value) or CLTV (Customer Lifetime Value) is a crucial parameter to check the success of the marketing team. In the following lines, you will know more about Customer Life Value.
Customer Life Value is an indicator that shows us how much money and income we can earn from a customer while they use our system or business.
Why we have to check out CLV?
At first, CLV let us know about the amount of money that our business can earn from each customer. Additionally, it is a good indicator for measuring your profit. So you can check your vision on profitability or loss in your long term plan.
How to calculate Customer Value?
There is a simple way to calculate CLV. We need to know two items:
1- AOV (Average Order Value): It measures the average total of every order placed with a customer.
2- PF (Purchase Frequency):
It is the number of times an average customer pay money for our product or service in a given period.
The CLV can be calculated by multiple these items.
3- CL (Customer lifetime):
This is the lifetime of your customers. It shows that how long a customer needs our services. Or how long our business is attractive to the customer.
Take an example:
There is a college bookstore. Average Order Value (AOV) for this business is 45$, additionally, the Purchase Frequency (PR) is 2.5 monthly. Customer Lifetime in this business in four years or 48 months. (students of the college buy books from that bookstore and lifetime for the customer this business in four years.).
So the Customer Life Value for this bookstore’s customer is:
CLV = AOV * PF * CL
46$ * 2.5 * 48 = 5520$
Finally, I have to mention that you should change your business priorities based on CLV. After calculating CLV you may need to change prices, or maybe you need to pursue customers to increase their purchase frequency.