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Customer Lifetime Value (CLTV / LTV)

February 26, 2023

Customer Lifetime Value (CLV) predicts the total value a customer will bring to a business throughout their lifetime. CLV is an important metric for businesses because it provides insight into the profitability of acquiring and retaining customers, and it helps businesses make decisions about marketing and customer acquisition spend.

The calculation of CLV involves estimating the average value a customer will generate through purchases, the average length of time a customer will continue to make purchases, and the cost of acquiring and retaining the customer. For example, if a customer spends an average of $100 per year with a business and is expected to remain a customer for 10 years, their CLV would be $1,000.

CLV can be used in a variety of ways, including:

Determining the most profitable customer segments: Businesses can identify the most valuable customers by calculating CLV and allocating resources accordingly.

Allocating marketing spend: By understanding CLV, businesses can determine the maximum they should spend to acquire a new customer and make informed marketing decisions.

Retention and loyalty programs: CLV can be used to determine the value of retaining customers, which can help businesses make decisions about loyalty and retention programs.

Predictive modelling: CLV can be used as a key input in predictive models, helping businesses decide about customer acquisition, retention, and growth.

Overall, Customer Lifetime Value is a valuable tool for businesses looking to understand the value of their customers and make informed decisions about marketing and customer acquisition spend. By understanding CLV, businesses can focus on acquiring and retaining the most valuable customers, ultimately driving growth and profitability.

Also, See: Custom Audience

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