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What is Customer Lifetime Value?

Customer Lifetime Value (CLV), often called LTV, is the total amount of money a customer is expected to spend in your business during their time as a customer.

 

Customer Lifetime Value formula.

Customer Lifetime Value (LTV) = Average Order Value * Purchase Frequency * Average Customer Lifespan

 

This is an important metric that provides you insights into your estimated revenue, high-valued customers, and your financial viability. It is less expensive for your business to keep the existing customers than to acquire new ones. Therefore, increasing the value of your current customers is a great way to drive growth in your business. Tracking this metric can help you develop strategies to retain your current customers and acquire new ones while maintaining profit margins.

Your average customer lifespan is the average time that the customers remain active before going dormant. If you have a new store, then you might not have enough data to determine the average customer lifespan of your store.

 

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What are the industry benchmarks for Customer Lifetime Value?

The industry standard is to use three years as an average customer lifespan if your store is less than three years (Source: Shopify).

 

How can you improve Customer Lifetime Value for your store?

There are a number of ways to improve your Customer Lifetime Value. You can invest in creating a more robust onboarding process to build stronger relationships with your users. You can sustain these relationships by producing content relevant to your user base in the form of newsletters or blogs.



 

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D2C brands from 60+ countries use Airboxr to analyze their revenue and make quick decisions. Start with a free account now.

 

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