How to calculate customer lifetime value for your business

Of all the marketing metrics you have at your disposal, customer lifetime value or CLTV, is one of the most useful. CLTV refers to the amount of money an individual will bring to your brand during their lifetime as a paying customer.

Rather than offering a generalized idea of customer’s shopping and purchasing habits, calculating the CLTV provides targeted metrics in a format that is specific to your business. Using this information to tailor your marketing strategies helps increase the percentage of repeat buyers, which in turn has a significant impact on your revenue stream.

It’s estimated that a 1% increase in customers returning to your website after their first visit corresponds with a 10% increase in revenue. These same repeat buyers also account for a portion of referrals, further boosting potential sales. Working toward the goal of increasing CLTV over time is a more effective marketing strategy than simply driving web traffic toward your site.

Why it’s important

The most compelling reason for investing your time and energy toward increasing repeat business and customer retention is that you will see an immediate ROI in the form of higher revenue. Putting that same investment toward working to attract new customers does not provide the same monetary results, because existing customers are 3-4 times more likely to make a purchase than new ones.

Finding ways to increase CLTV for your business will allow you to use your marketing resources more efficiently with measurably better results. Another common marketing goal, strengthening brand awareness, can also be achieved by taking a more customer-centric approach rather than focusing on a broad-reaching advertising campaign.

Analyzing your customer’s specific buying patterns and behavior helps you to fine tune your outreach, further enhancing their overall opinion of your brand and company as a whole.

Double check your work

When you calculate your brand’s CLTV, you’re better able to see this segment of high-value purchasers. Your most dedicated customers account for the largest portion of overall sales, so maintaining their loyalty is key to your bottom line. Keeping track of CLTV changes is a good way to retain recidivism among your best customers. It allows you to identify a behavioral change such as increase or decrease in browsing activity and purchases and respond with a targeted outreach. Integrating metrics such as customer lifetime value into your business sales strategy can have a direct effect on brand name awareness and loyalty as well as an increase in customer retention and sales.