Question

What is the LTV of a customer?

Answer 1

Lifetime Value (LTV) of customer is an important metric to measure at any growing company. This metric will predict all the values of business which drive from their entire relationship with the customer. Because we are not sure how long the relationship will be, but marketing managers can make a good estimate and state customer LTV as a periodic value. LTV of customer is the present value of the future cash flow or the value of business attributed towards the customer during his/her relationship with the organization. In other words Customer LTV represents the total net profit company makes from any given customer and it determines how much money a firm needs in order to spend on acquiring the new customer and how much repeat business can a company expect from certain customer. Generally the Lifetime value should be greater than the cost of acquiring a customer.

Customer LTV is the value a consumer contributes towards the business over the entire life time of organization. It is very important to consider during making decisions about sales, marketing, customer support and product development. By applying the CLTV the manager can easily determine the price value associated with the long term relationship with the customer. The CLTV is calculated by using the formula = Average Order Value x Number of Repeat Sales x Average Retention Time.