What's Special About This Metric and Why Everyone Should Track It

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Everyone around is counting and analyzing. There are many metrics and it is very easy to get confused in them, we understand. Today we will talk about the most important one for a marketer and a business, which needs to be counted regularly - LTV.

LTV (Lifetime Value) is the profit that a user brings you for the entire time of working with him. Marketing, work on attracting and retaining customers, especially when it comes to e-commerce, revolves around this indicator. The LTV formula has many names, but the essence is the same. You can come across the designations clv or cltv (customer lifetime value) - this is the same, but LTV (lifetime value) is calculated from installations, and CLTV (customer lifetime value) from paying users.

It is necessary to ensure that the costs of attracting a uae email list client do not exceed the income from the entire cycle of interaction with him, otherwise you will simply go broke. For example, you sell fish tanks. Attracting each new client costs you $ 200. In this case, the analysis shows that you need to create a strategy so that the revenue from the client is 3-4 times more, that is, about $ 1000.

Why you need to calculate LTV (Lifetime Value)
It is clear that everyone wants to achieve KPIs and no one wants to work at a loss. Marketing strategy is built on the fact that income exceeds expenses , and the ltv/clv ratio is an indicator of the current state. That's not all. Let's go over the main advantages that analysis of this metric provides.

Identifying the most loyal customers. Customers with the highest LTV can be called loyal. Most often, these are customers with the highest average check or customers with a smaller check, but who often make purchases and bring you more profit. It is necessary to pay special attention to them and work on their retention.
Optimizing retention efforts. We have already discussed why it is important to know and analyze customer retention metrics , and customer lifetime value (LTV) is one of the most important metrics. If CAC (customer acquisition cost) is higher than CLTV (customer lifetime value), you need to focus on increasing the duration of the customer service cycle or finding more effective acquisition channels.
Understanding behavioral factors. You will be able to customize communication with the client on the site depending on the value of the ltv coefficient and understand what exactly pushes him to buy.
Read also:

CAC: How to Calculate the Cost of Customer Acquisition
CAC: How to Calculate the Cost of Customer Acquisition
How to calculate LTV
There are several formulas for calculating the LTV (CLV) coefficient, they should be applied depending on the characteristics of your company, your KPIs and the purpose of the calculations. Let's consider the main and most common formulas for calculating LTV (lifetime value).

Method 1: Advanced
A more accurate formula is LTV, but to use it you need to know two more indicators.

Lifetime is a metric that shows how long a person remains an active user of a product (the cycle from the first to the last launch of the service).

ARPU is the average revenue per customer over a period. To calculate it, you need to divide your regular income for a period by the number of customers for the same period.

Now you need to multiply these metrics, and you will get the LTV/CLV indicator.

LTV formula 1
Let's say you want to calculate the LTV coefficient for a service with a monthly subscription, on average it is purchased for six months at once. The price of a monthly subscription is $30. It turns out that ltv will be 30×6 = $180.

Since LTV calculations are based on average product/check cost and lifetime, you cannot avoid errors. But you can easily calculate lifetime value for any period and for a user segment with any average check.

Method 2: superpower
To calculate the LTV (lifetime value) coefficient using this formula, you need to use more indicators. You will need to know:

AOV (Average Order Value) — average order amount or average check.

RPR (Repeat Purchase Rates) — frequency of repeat purchases.

Lifetime is the total period of work with the buyer (already discussed above).

Now multiply these numbers together to get your LTV.

LTV formula 2
So, you have an online store of tableware. You know that your average check is 600 rubles. You have regular customers, they come back twice a year, and your average Lifetime is 5 years. Let's calculate the LTV: 600 * 2 * 5 = 6,000 rubles.

This LTV calculation formula is predictive in nature: you cannot be completely sure that the client will stay with you for these desired 5 years or that their average check will not change. It is very convenient to use it to set a benchmark.