How to Calculate Customer Lifetime Value

Posted by Humane Design on July 3rd, 2022

It is easier to sell to an existing customer than to buy a new one. Because of this, you want to make sure that your customers are happy with your product or service so that you can retain them long enough to offset the investment you made to earn your business in the first place.

The last thing you want is to churn out customers so you keep looking for new business. One of the best ways to narrow this down is to measure how to increase Customer Lifetime Value (CLTV). This helps your business attract and retain valuable customers, which translates into more sales over time.
What is Customer Lifetime Value (CLV)?

Customer Lifetime Value (CLV or CLTV) is a metric that reflects the total revenue that a business can reasonably expect to receive from a single customer account throughout the business relationship.

The metric takes a customer's revenue value and compares that number to the company's estimated customer lifetime.

The longer a customer purchases from a company, the higher its lifetime value.

This metric is something that customer support and success teams can directly influence throughout the customer journey. Account executives and customer success managers are instrumental in resolving issues and providing recommendations that increase customer retention and reduce churn.

It can also be used to make business decisions. For example, you can use Customer Lifetime Value to identify the customer segments that are most valuable to the business and target accordingly.
Benefit of customer lifetime value

Customer lifetime value is an incredibly useful metric. It tells you which customers are spending the most on your business and which are staying with you the longest. Use the formulas and models above and start calculating CLTV for your business today. To learn more, just google how to improve clv.