What Is Customer Lifetime Value & How Do You Calculate It

When you construct your marketing strategies and consider your customer relationships, there are business metrics that factor into this aspect. One type of business factor that you must determine is customer lifetime value, or CLV. CLV is the measurement of how much a business may expect to earn from an average customer during the business relationship.

What is Customer Lifetime Value

Customer lifetime value is a measurement of the total amount of income a business might receive from an average customer during the time period they remain a client of the business. This calculation looks at the average income and average profit received by the business from a typical client.

Why CLV Matters

CLV is important as it provides the business with an idea as to customer interaction and marketing strategy success. It also lets business owners know what works to attract high activity clients and how to replicate this to do more business with other customers in general.

Risk of Not Knowing About This Concept

If you don’t know about CLV and how to calculate this factor, you may not do the best business you can do. You might miss out on increasing product and service sales. Also, you may be using a marketing plan that’s not working well and you don’t even know about it. CLV helps to increase customer revenue with particular clients and also with regard to your general customer base.

How to Calculate CLV

It’s quite easy to calculate CLV and put this factor to work for your business. Here’s how to do so:

  • Step 1: Write down how much a typical customer spends per visit or purchase.
  • Step 2: Note how many times per week the customer buys something.
  • Step 3: Note how long the person has been a customer of your business.
  • Step 4: Multiply all three numbers and get the CLV.

When you have that total number you can understand how well you’re doing with sales based on the average customer. Once you have this knowledge, you can take the necessary steps to improve your marketing strategies and gain more business.

Speak with the experts at AIMG about finding more valuable customers!