A prediction of the net profit attributed to the entire future relationship with a customer.
To determine LTV, multiply the average purchase value by the average number of sales in a customer’s lifetime by your company’s gross margin.
When you measure Return On Investment you are doing well as a web store, but is it possible to use your marketing budget even more effectively for the long term? Yes, that's possible! Using the Customer Lifetime Value (CLV). CLV is the Key Performance Indicator that determines the value of a customer. With this you determine how much you can spend to attract customers in the long term. Taking into account the repeat purchases of the customer.
This article describes the added value of CLV and how Google Analytics (GA) can be used to measure this. The deployment of GA described below also offers more analysis options for new and existing customers.
CLV is a calculation of the net revenue that a customer generates in the total period that that customer is. This is the revenue that the customer has generated from the first to his last purchase.
Satisfied customers continue to buy at the same web store. They order again and therefore generate more revenue. The budget that was used to recruit these customers then again generates revenue. This principle is based on the principles of CLV. Calculating CLV sets a guide value for the limit that can be spent to recruit a customer. This has made CLV indispensable for many companies in determining the marketing budget.
CLV is therefore the potential contribution of a customer to the profit your company in the period that this customer buys products.
CLV is an expanded version of Return On Investment (ROI). ROI is calculated by dividing the costs by the revenue. CLV also takes into account the period that a customer is a customer. The period between the first and the last purchase can vary, this depends on the type of product. For travel this can be a year, for branded products this can be many years.