One of the metrics that cannot be ignored when analyzing a business’s performance is Lifetime Value (LTV) , which can be translated as the value of a customer’s life cycle.
This data is a projection and corresponds to the profit margin that a company has – or expects to have – from its customer’s conversions for a specific period.
An important point that deserves attention when working with marketing is that retaining customers is much more advantageous – and cheaper – than acquiring a new one. And this observation can be made at a glance. Lifetime Value (LTV) helps to make this analysis in more depth.
Brands that have already understood this logic dedicate a large part of their campaigns to making the shopping experience increasingly better. This increases the chances of consumers returning to buy more frequently, making the profit indicator grow more and more with less investment.
Why should your brand pay attention to Lifetime Value (LTV)?
In general, the numbers show how the special database are performing and help define adjustments to make the results more assertive.
In the case of Lifetime Value (LTV), the data collected clearly shows how the customer’s lifetime is for a company, that is, the duration of the purchasing relationship, the profit generated and the number of purchases that the person makes during this life cycle.
This information is valuable because it allows the company to:
- Get to know your customer more deeply;
- Refine the profile that best fits your business objectives;
- Create actions to maintain and extend customer lifespan;
- Make the life cycle more profitable through promotions, product creation and engagement and delight actions.
How to calculate Lifetime Value (LTV)?
The more organized your customer negotiations are the basis of everything and CRM are, the simpler and more comprehensive the analysis is. This is because this metric depends on other important information, such as
product value, average customer ticket, the number of times they return to convert and marketing investments to retain that same consumer.
It seems complicated at first, but as the formula is applied, it becomes easier to understand where marketing investments are going and how consumers behave.
The general formula is as follows:
LTV = (Average Ticket x average annual number of purchases made by the customer) x average relationship time
In which:
- Average ticket: total amount spent by the customer across all transactions
- Number of purchases or transactions is the number of times the customer converted
- Relationship time: customer life cycle, that is, the relationship between the customer and the company
Want an example? Here we go:
The customer has an average spending value of 120.00. He made 4 purchases over 3 years. In this case the calculation is as follows:
As with any metric analyzed within marketing, it is necessary to take into account other variables and other indicators. Issues such as investment in advertising, product logistics, abandonment rate (in the case of e-commerce), among other indicators that may vary from company to company.
It is also worth remembering that the Lifetime Value (LTV) metric must always. With the Customer Acquisition Cost (CAC), so that the company can better understand how to invest to maintain its customer flow and its business.
READ MORE: Do you know how to calculate the ROI of your digital marketing actions?
What can your company do to increase Lifetime Value (LTV)?
To build customer loyalty, the secret is to cell phone number a good relationship, building trust that is hard to break. Just like in the acquisition process, you need to invest in marketing, but in a more personalized way. Here are some tips:
Ads: create campaigns especially for people who have already purchased from you, offering differentiated products that add value.
Email marketing: direct promotions and launches first to those customers who have already converted, as a way of showing that they are different and that your brand gives them the value they deserve.
Social media: interact with customers. In addition to answering questions, respond carefully to compliments and reviews you receive. This care will show the customer that you value them as you should.
