How does Airboxr calculate customer lifetime value (LTV)?
Learn how LTV is calculated with your Shopify data.
Jan 12, 2022
Customer Lifetime Value, often called LTV, is the total amount of money a customer is expected to spend with your business during their time as a customer. This is an important metric that provides you insights into your estimated revenue, high-valued customers, and your financial viability.
Customers must meet all the conditions below to be included in the LTV estimate:
Customers who have been created before the last 180 days—this is because customers who have not been around for six months are unlikely to have enough data to estimate their lifetime value.
Customers who have ordered at least once in the last 180 days—this ensures that only active customers are considered in the calculation.
After the above operations, there must be at least 30 customers remaining to run the calculations on.
Once the eligible customers have been isolated, Airboxr conducts the following calculations:
Step 1: Calculate the average of total spend per customer.
Step 2: Estimate the average spend for each customer over the next year.
Step 3: Add the output from steps 1 and 2. This gives us the LTV.
Why do we calculate LTV this way?
Typically, the formula for LTV is Average Order Value * Purchase Frequency * Average Customer Lifespan. That works well when your store has been around for more than 3 years and you have a clear estimate of your average customer lifespan. That said, the customer lifespan is tough to estimate for new stores. We get around this by our assumptions: that customers who have been around for more than six months and have been actively purchasing from you are likely to stick around for another year.
⚠️ For larger stores, this metric can take a while to load. Typically, this metric loads on your home page within 30 seconds.
Where can I view my LTV?
To view your LTV, simply log in to Airboxr and connect your Shopify store. If you have already connected your Shopify store, you will see your LTV on the KPI section on your home page.
Airboxr calculates Customer Lifetime Value (LTV) by first identifying eligible customers (those created before the last 180 days and have ordered at least once in that period) and then executing calculations. These include averaging total spend per customer and estimating their spend over the next year, combining these to derive the LTV.