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What is customer lifetime value and how it impacts business success

What is customer lifetime value and how it impacts business success

Sunday September 17, 2017,

3 min Read

"Customer lifetime value" can be defined as the net profit that a business can make from a loyal   Customer over his lifetime patronage to the business. it can also be called by the acronym"CLTV" or "LTV"

It is quite important for any marketer to focus on customer lifetime value to build and maintain proper Relationship with the customers as it helps in retaining the customers by helping us understand the Customers, their expectations, and requirements 

"CLTV" is an indispensable metric for any marketer as it helps them to estimate how much a business can Spend on advertising and other promotional activities to acquire a new customer which is called by "Customer acquisition cost"(CAC)

Going by the thumb rule, cost of acquiring a customer should be always less than the customer lifetime Value of that customer, it can be simply represented as CAC<CLV.or else the business will not last long.


"CLTV" can be simply calculated from the formulae below:-

Customer lifetime value=Average order value*(number of repeat purchases*average retention rate)

Eg:- let's say there is a restaurant XYZ, where the average order value of each customer is Rs 500/- and 

Number of repeat purchases in a month is "3" times and average retention rate of each customer is 5 

Years then the  customer lifetime value of the business will be 500*3*60=Rs 90,000/-

"The easiest and most powerful way to increase customer loyalty is really very simple, 

 Make your customers happy"-Keven Stirtz

Benefits of customer lifetime value:-

1)Helps measure customer loyalty:-

Marketers can able to identify loyal customers to their business and focus their marketing efforts on only Those few customers who can generate maximum profit to the company by delivering delightful Customer experiences to the customers and thereby Increasing profitability and retention.

2)Determine ROI:-

Customer lifetime value helps determine the return on investment(ROI) on the amount spent and resources Utilised for the business.

3)Business valuation:-

It acts as a key metric in determining the valuation of the company by forecasting the future sales and Profits which can be yielded from the current customer base and how to go about increasing customer base In the future.

How to build customer lifetime value:-

"Customer lifetime value" can be built in several ways, below listed are few among them.

Businesses build and cultivate loyal customers and thereby increase customer lifetime value of their Customers by offering various incentives to them like "exclusive discounts on premium Deals","personalized offers on special occasions", an extension of the free trial period on paid Membership plans etc.

"Customer lifetime value" helps business in dividing the budget amount needed to conduct various Marketing campaigns targeted towards acquiring new customers as well as retaining existing customers and moreover each business must build proper customer acquisition and retention strategies which with The help of customer lifetime value of each customer which will help to improve long-term success of the Business.