Image from chartmogul.com
The Lifetime Value (LTV) of your customer is the average amount of money your customers will spend on your products or services over their lifetime (or while they were your customer).
This is the most important metric in business because it helps you determine how much money to spend in acquiring new customers or retaining existing ones. Moreover, it will also help you in budgeting and planning your sales/marketing strategies.
Here is a practical example, let’s assume you own a gym and customers on average stay with your gym for at least 12 months. If your membership fee is $40, then your LTV is $480. For simplicity, let’s assume your profit margin is 50%; this implies that you can spend up to $240 to acquire a new customer.
The LTV metric is in play whenever you see a wireless network provider (like Verizon, At&t, T-Mobile, etc) offering free gifts or phones to new subscribers. Microsoft gaming division also make use of this metric because they lose money each time an Xbox is sold (the consoles are sold below cost). The consoles become profitable over time for Microsoft mainly through the sale of games and XBOX Live subscription to the console owners.
So, it is important that you spend some time researching ways to increase your LTV because in a commoditized marketplace, the business with the biggest LTV will be the last one standing (ceteris paribus).
By the way, before you leave we’re currently offering a free consultative session on how to build a behavior based, data driven automated sales prospecting system. This is the future of marketing (marketing 3.0). To book your consultative session click here.
Author: Chris Ogunor