Performing your customer lifetime value calculation is an important metric for your business to measure. By being able to measure the CLV, you can measure how long it will take to get back the potential investment that it has taken to earn a new customer for the business. The investment refers to the sales and marketing that will have been used to attract new customers. For any business, being able to get new customers, and to keep those customers, is really important. As a result, it is essential that you know what customer lifetime value is all about, as well as how to calculate it.
For a quick solution, you can try our customer lifetime value calculator.
Average purchase value
One of the first steps that you need to think about for a customer lifetime value calculator is looking at the average purchase value of a customer. You can calculate this number by dividing your businesses’ total revenue for a particular time period, by the number of purchases that have been made over the same time period. From there you can see if the sales and marketing efforts that you have been doing, have been working or not. For a particular campaign, you could just look at that month the campaign ran, or the couple of months surrounding it, to see how much value it had and how effective it was in generating new customers.
Average purchase frequency rate
The second step to be able to get the most accurate customer lifetime value formula is all about calculating the average purchase rate. In other words, how often customers are buying from you. To work out this element of the CLV, divide the number of purchases that are made, with the number of unique customers that you have had and who have made purchases Again, this can be for a set time period, or worked out for a time period around something specific like a sales promotion or new product launch.
If you want to get the most accurate idea of your customer lifetime value, then you need to look at what each customer is buying. You can workout this step, but calculating the average number of purchases and their value, and multiplying that number by the average purchase frequency rate. This calculation will let you know how much revenue that each customer is worth to your business, during a set period of time. When you’re able to repeat this calculator for a range of customers, you can calculate what the average spend is, and therefore value is.
Calculate average customer lifespan
One other step to working out the most accurate way to measure customer lifetime value is to measure the average customer lifespan. In order to do this, you would need to look at the number of months or years that each customer used your business. From there, it can be straightforward to calculate lifespan by averaging out the number of years that a customer uses and carries on buying from your company.
Calculate customer lifetime value
After you have calculated what the average customer value is, as well as the average lifespan for customers, you can go ahead and use this information to more accurately complete your customer lifetime value calculation. This will help to give you the profit that you can expect to come from an average customer, as a result of their spending with you. This can vary, of course, but using it as a guide can help with your forecasting.
With these five steps, you can more accurately calculate your customer lifetime value, which is some invaluable information for any business. If you will be looking for ways to improve it, then there are a number of things that you can do, however, customer satisfaction is going to be key to being able to retain the customers that you do have. As a result, it will help to increase the CLV number, which benefits the business. Getting new customers can be pretty costly, so it pays to look after the ones that you already have.
At Manson Media, we are passionate about helping businesses. We can help you to understand your customer lifetime value, understand your customers, and help you to see what the best channels are that are going to make a difference to your customers. At the end of the day, we help to deliver results. If you want to see how we can help with customer lifetime value calculations, and implement strategies that will work to improve it, then get in touch with one of our experts today. We look forward to hearing from you.