How to Calculate Customer Lifetime Value and Grow Your Business

CLV i.e., Customer Lifetime Value is a metric that indicates total revenue the business can fairly expect from the single customer account. Customer lifetime value considers the revenue value of a customer, as well as compares that number to the predicted customer lifespan of the Company. 

Wondering how to businesses calculate CLV?

Firstly, calculate the lifetime value through multiplying a sale’s average value, the average period of customer retention, and the average number of transactions. 

Lifetime Value = Number of Transactions x Average sale value x Retention Period

As a customer’s lifetime value is calculated in terms of gross revenue, it doesn’t consider operating expenses. So, how much did it cost for making the product, advertise, & handle operations? Keep in mind these operating costs while calculating Customer lifetime value. 

CLV = Number of Transactions x Average Sale Value x Profit Margin x Retention Period

Or just:

CLV = Profit Margin x Lifetime Value

For increasing LTV (Lifetime Value), you have to enhance either the Average Purchase Frequency or Average Order Value. Any bump in either of these metrics will result in a boost in your LTV. Begin by reflecting on your own experience. What are those things which cause you to buy more? As a minimum, you must, of course, be sending out the thank you email to every customer at the end of every purchase. Now and then, contact them, via social media or email, and cherish your relationship. 

• The study conducted by Bain & Company found that a 5% enhancement in the retention rate can result in a boost in profit between 25%-95%. 
• Now, this makes it important that the business adopts the best Customer retention strategies for identifying and nurturing the most precious customers that interact with the Company.
• Also, proving value will ensure the fact that you enhance loyalty amongst the paying customers. 

For example, say you have got the fitness application then, every week, you can remind the subscribers of the product’s value by sending out the email consisting of their statistics, displaying how their fitness and health have improved over time. With acquisition rates so much elevated than retention, crafting amazing Customer retention strategies for maximizing revenue coming from the current customers is the sharp move. By doing the same, you will get more total revenue leading to an increment in CLV.