{"id":65,"date":"2015-11-02T12:00:47","date_gmt":"2015-11-02T12:00:47","guid":{"rendered":"https:\/\/tuneseidelin.com\/?p=65"},"modified":"2017-06-22T10:59:02","modified_gmt":"2017-06-22T10:59:02","slug":"how-to-calculate-customer-lifetime-value","status":"publish","type":"post","link":"https:\/\/tuneseidelin.com\/how-to-calculate-customer-lifetime-value\/","title":{"rendered":"How to Calculate Customer Lifetime Value"},"content":{"rendered":"
Do you know\u00a0how to calculate customer lifetime value (CLV\/LTV)?<\/p>\n
If not, then you are probably leaving money on the table…<\/p>\n
But don’t worry.<\/p>\n
I got your back.<\/p>\n
I’ll show you exactly how to go about it.<\/p>\n
And I’ll even show\u00a0you, how to use this metric to increase profits in your business.<\/p>\n
Sounds good?<\/p>\n
Great!<\/p>\n
Here’s how to calculate customer lifetime value:<\/p>\n
Total Customer Revenue x\u00a0Gross Profit Margin\u00a0= Customer Lifetime Value<\/strong><\/p><\/blockquote>\n
(You get\u00a0“total customer revenue” by answering these three questions:<\/p>\n
\n
- How much does my customer spend on average? (average transaction size)<\/li>\n
- How often does my customer buy from my business? (purchase frequency)<\/li>\n
- And how long does my customer keep coming back? (retention rate)<\/li>\n<\/ol>\n
And “gross profit margin” is your profit after deducting the\u00a0cost directly associated with fulfilling the orders (materials, labor etc.)).<\/p>\n
Here’s an example:<\/p>\n
A pet food shop has an average transaction size of \u20ac20, a purchase frequency of 2 times per month and a retention rate of 36 months.<\/p>\n
That leaves us with a total customer revue of \u20ac1440 (\u20ac20 x 2\/month x 36 months).<\/p>\n
And with a gross profit margin of 50% we get a customer lifetime value of \u20ac720 (\u20ac1440 x 50%).<\/p>\n
That’s all there is to it.<\/p>\n
So\u00a0let’s move on and take a look at…<\/p>\n
How to Use CLV to Increase Profits in Your Business<\/h2>\n
First of all, when you know how much a customer is worth to you…<\/p>\n