The Customer lifetime value (CLTV) model gives you the advantage of forecasting your revenue from customers for a specific period, usually, it is for one business year.
Calculate the average purchase value (APV):
APV number you can calculate by dividing the company’s total revenue by the number of purchases over the same time period.
Calculate the average purchase frequency rate (APFR):
By dividing the number of purchases by the number of unique customers who purchased your product during the time period, you get your APFR number.
Calculate customer value:
The CV number you can calculate by multiplying the average purchase value by the average purchase frequency rate (APV/APF).
Calculate average customer lifespan:
By averaging the number of years (months) a customer continues purchasing from your company, you get the ACL number.
Calculate customer lifetime value:
By calculating your CLTV by multiplying customer value by the average customer lifespan and get the expected revenue average. You can reasonably expect an average customer during a relationship with you.
Improve your LTV
To improve LTV, you have to increase customer satisfaction with your product or services and work on the retention techniques.
Making your customers happier will usually result in them spending more money at your company. According to HubSpot Research, 55% of growing companies think it’s “essential” to invest in customer service programs. If we look at companies with stagnant or decreasing revenue, only 29% said this investment was “significant.” Companies that are actively geared towards their customers’ success are experiencing more revenue because of increased customer satisfaction.
Acquiring a new customer can be very costly. Gaining a customer can cost between 6 to 25 times more than retaining an existing one. Additionally, a 5% increase in a retention rate increase in profit between 25% to 95%. Develop your retention mechanisms that include effective communication with the customer, adequately set a publishing plan, and show convertible offers to your customers to retain the value again.