Calculating the LTV of a single customer is relatively easy. Assuming that Xiao Wang bought 500 cups of Starbucks lattes in his seventy years of life, each cup cost 120 yuan. And did not make other purchases at Starbucks. Then the customer lifetime value provided by Xiao Wang to Starbucks is 60,000 yuan (500 x 120) yuan. However, the reality is bulk sms master not that simple. According to a statistical report by Invesp , 76% of companies believe that LTV is an important indicator. But only 42% can accurately calculate customer lifetime value .
First of all, it is often difficult for brands to estimate the value that a customer can provide in a “lifetime”. But can only estimate it over a period of time. Furthermore, brands usually do not only care about the LTV of a single consumer, but will further want to know the average LTV of all customers, or the average of a certain group of customers. Therefore, most brands use the following formula to estimate average customer lifetime value:
We can break down the formula into the following three parts to understand:
Formula 1: Customer Lifetime Value LTV = Average Customer Value * Average Customer Lifetime
If you want to calculate the average LTV of a group of customers, the brand will need to calculate two key figures: “Average Customer Value (ACV)” and “Average Customer Lifespan (ACL)”. The unit of average customer value is “yuan/period of time”, and the average customer life span will also be measured based on the customer journey definition and importance aforementioned time. For example: the average customer value is “400 yuan/year” and the average customer life span is 20 years, then the average customer lifetime value is 8,000 yuan. Some brands have shorter product cycles or lifespans, so it may be more appropriate to calculate LTV in months. For example: the average customer value is “200 yuan/month” and the average customer life span is 20 months, then the average customer lifetime value is 4,000 yuan.
Formula 3: Average customer lifespan = sum of customer lifespans/total number of customers
In Formula 1, the average customer life span can be calculated by “summing customer life span” and “total number of customers”. The customer life span of each customer is different. When calculating the average customer life span, you yeezy 350 boost v2s can calculate the average life span of this group of customers by dividing the sum of customer life spans by the total number of customers. Assume: Brand has three customers ABC. A has been consuming the brand for 5 years, B has been consuming for 10 years, and C has been consuming for 15 years. Then the average customer life span of this group of customers is: (5+10+15)/3 = 10 (years).
