Customer Lifetime Value (CLV) is a metric businesses should use to understand how valuable each customer is to their business throughout their life.
It is expressed as the total lifetime value in dollars to the company after taking into account acquisition and ongoing costs.
Read more about about how to use CLV in business here.
Free Online CLV Calculator
Why Track Your Customer Lifetime Value
Your customer lifetime value is a great data point to get a sense for what each customer is worth to you.
It allows you to make more informed decisions about marketing and acquisition costs. It can also provide insight into areas that can be maximized to increase each customer’s value to make more profit.
Let’s take a web design company that charges $200 upfront and then $100 per month to host and maintain a website for a local business.
They paid $30 in advertising to originally get that client and then have $15 per month in other costs, such as hosting and domain fees.
We also know that the average client stays with this particular web design firm for 5 years.
By using the calculator, we see that the customer lifetime value is $5,270, based on these numbers.
Not bad, but what if the goal was to make $10k from each client? You can then play with the numbers to see how to adjust your business model.
For example, the company could increase the monthly fee, increase the expected lifespan, increase the startup fees, or reduce monthly costs.
Finding the right combination for your business will help to maximize revenue.
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