Learn to calculate Customer Lifetime Value and master this key metric.
To calculate customer lifetime value, which predicts the total revenue a business can reasonably expect from a single customer account, you need to calculate average purchase value, and then subtract average purchase frequency rate from that number to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by customer value to determine customer lifetime value.
Customer lifetime value (LTV) is one of the most important metrics to measure at any company. It is equally important to brick and mortar companies as well as businesses focused only on e-commerce.
By measuring LTV in relation to cost of customer acquisition (CAC), companies can measure how long it takes to recoup the investment required to earn a new customer -- such as the costs incurred by business development, sales and marketing.
This key metric tells companies how much revenue they can expect one customer to generate over the course of the business relationship -- which typically is something customer support and success teams have direct influence over.
The longer the timeframe a customer continues to purchase from a company, the greater their lifetime value will become. And customer support reps and customer success managers, who actively play key roles solving problems and offering recommendations that make customers decide to stay loyal to your company, or go to another vendor.
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