The lifetime value of your customers is an important number for you to know. First, you must understand how much money you can earn on average from each customer you attract to your product funnels. Then you’ll know how much you can afford to spend to attract the customers, create more products, and more.
The Lifetime Value and How to Figure It Out
The first thing you need to understand is how to calculate your CLTV (Customer lifetime value) mathematically. There is a lot that goes into this figure. You can do it the simple way by adding up the price of every product the customer could buy from you. The number you get is a potential goal to reach for in terms of per-customer sales.
For example, if you have ten products that your customer needs to buy, each costing 100 dollars, then your CLTV is potentially 1000 dollars per customer. But if you already have sales, you can calculate the CLTV based on reality and not based on assumptions.
The CLTV Formula is: Customer Value multiplied by The Average Customer Lifespan.
Know Your Average Purchase Value![lifetime value of your customers purchase]()
When any given customer does buy from you, how much is the average order or APV? The APV is figured by adding up all the purchases during the period in question and dividing it by the number of purchases. So, if the last year you’ve made $120,000 from product sales, and you had 1000 transactions, that means that the APV is $120.
Know the Average Purchase Frequency
Using the information from above, if we have 1000 transactions, how many of them were repeat buyers, and how many were unique buyers? Divide the number of transactions by the number of unique or repeat customers depending on what you’re trying to figure out.
Figure Out Your Customer Value
Now that you know the average purchase value from above, you can also figure out your average customer value. Multiply the APV by the purchase frequency. In the case above, you can figure out repeat and unique purchase value.
Determine How Long Customers Stick to You![lifetime value of your customers longevity]()
This is considered the average customer lifespan. It is calculated by using an average of the years any customer will purchase from you. Just add up how long each customer has been buying from you and get an average. So if customer A has been buying from you each month for two years and customer B for six years, and so forth, you just add up all the years, and divide by the number of repeat customers you have.
Now that you have all that information, you can calculate more accurately your CLTV. Multiply the CV by the average customer lifespan. If you don’t have a lot of records yet, you can start with the basic number of how much is possible to sell to any given customer. You base this on what you have in your product funnel for each type of customer you bring in.
To improve those numbers, you’ll want to create more offers, test your pricing, provide a lot of value, and deliver top-notch customer care. After all, happy customers stick with what they know, so work on making them thrilled with what they know about you, and you’ll have no problem increasing your customer lifetime value.
