Understand the concept of lifetime value and its importance for e-commerce success.
Learn the formulas for calculating LTV and identify the inputs needed for accurate calculations.
Explore the relationship between retention, churn, and LTV.
Predict the net profit attributed to the entire future relationship with a customer.
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Lifetime Value (LTV)
The total worth to a business of a customer over the whole period of their relationship.
An important metric for understanding how much to invest in acquiring new customers and retaining existing ones.
Helps businesses make decisions regarding sales, marketing, product development, and customer support.
Imagine you've got a loyal customer who keeps coming back to your coffee shop. Over the years, they buy hundreds of coffees, pastries, and even some merchandise. The total amount they spend during their relationship with your shop is their Lifetime Value (LTV). In a broader sense, LTV represents the total revenue you can expect from a single customer over the duration of their relationship with your business.
LTV gives you a clearer picture of the long-term value of your customers, not just a one-off purchase. It helps in:
LTV can be calculated using this simple formula:
LTV = (Average Purchase Value x Average Purchase Frequency) x Average Customer Lifespan
For instance, if a customer typically spends €50 every month for three years, their LTV would be €50 x 12 x 3 = €1800.
Lifetime Value is a crystal ball into the future potential of each customer. It's not just about the here and now but the long-term relationship and revenue potential. By understanding and optimising LTV, businesses can make more informed decisions about marketing
FAQ
Frequently asked questions about this concept.