Hey, It’s Rob Trube with Strategy Simple with another drill for your Organic Growth Acceleration Playbook.
Today we are going to calculate one of the most important metrics you can track – Customer Lifetime Value or LTV.
This quote from Bain & Company captures it pretty well:
“By knowing the total amount of revenue a person will generate, companies can make better decisions on how to acquire and retain the customer.”
– Bain & Co.
So, how do you calculate it? It’s actually pretty simple.
Average Customer Value x Average Customer Lifespan (with your company) = LTV
So, If you have an average customer value of $1200 per year and your Clients are typically with you for 4 years, then the LTV of a client is $4800.00
You can us this number in a variety of ways:
Segment existing customers and then implement strategies to improve retention or increase their average revenue with your company.
Make data-based decisions on what types of customers to pursue and which to avoid.
Inform the critical decisions of customer prioritization, acquisition, onboarding and retention.
So that’s it – LTV is a number you can easily calculate and use throughout the decision-making process in your business.
Again, I’m Rob Trube with Strategy Simple. See you next time!