Lifetime Value (LTV)
It is an estimation of the net profit that the users who make the purchase will realize on their next purchase.
LTV takes into account not only the initial purchase a customer makes but also factors in the potential for repeat purchases, cross-selling, upselling, and the overall longevity of the customer relationship. This metric is particularly important for businesses with subscription models or repeat-purchase scenarios, as it helps them understand the financial impact of retaining customers over time.
How to Calculare The Lifetime Value?
The formula to calculate Lifetime Value can vary depending on the complexity of the business model and the data available, but a simplified version could be:
Why Lifetime Value (LTV) is important for businesses?
Profitable Growth: Compare customer value to acquisition costs.
Smart Decisions: Allocate resources effectively for growth.
Retention: Build loyalty and lasting relationships.
Targeting: Identify valuable customer segments.
Product Improvement: Refine offerings for better returns.
Forecasting: Predict future revenue from existing customers.
Investor Confidence: Impress investors with strategic insights.
Risk Management: Evaluate churn and customer satisfaction.
Upselling: Tailor strategies to boost sales from each customer.
Competitive Edge: Cultivate long-term customer connections and stand out.