LTV or Life Time Value refers to the projected revenue that a single customer is estimated to generate over the course of their relationship with a company. LTV is a key helpful metric for businesses to track because it supports businesses in determining how much they can afford to spend on acquiring new customers through marketing and sales efforts.
There are a number of different methods that businesses can use to calculate LTV, but the most common method is to take the average revenue generated per customer over a period of time and then multiply it by the average length of time that a customer remains a paying customer.
LTV is an important metric for businesses to track because it can help customers determine whether or not to tap into acquiring new customers. A high LTV signifies that a business is doing something right when it comes to acquiring and retaining customers. Conversely, a low LTV can be an indication that a business needs to re-evaluate its customer acquisition strategy.
Overall, it is extremely beneficial for a business to track its LTV rate because it provides valuable insights and allows for decisions to be made.
How is LTV calculated?
LTV is typically calculated by taking the average revenue per user (ARPU) and multiplying it by the average customer lifespan.
What are some benefits of tracking LTV?
Tracking LTV helps businesses understand which customers are most valuable, as well as identify opportunities to increase customer retention and loyalty. It also allows marketers to focus their efforts on acquiring high-value customers, rather than wasting resources on low-value prospects.
Fun Fact:
"The average LTV (Life Time Value) of a customer is 3.79 times the cost of acquisition" (Vishwanath, 2017).