Calculating customer lifetime value (CLV) can be a useful way to understand the value of a customer to your business over their lifetime and inform your digital marketing efforts.
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Here are the steps you can take to calculate CLV:
- Determine the average purchase value (APV) of a customer: This is the average amount that a customer spends on each purchase. You can calculate this by dividing the total revenue generated by a customer over a given time period by the number of purchases made during that time period.
- Determine the average number of purchases per customer per year: This will help you understand how often a customer makes a purchase from your business. You can calculate this by dividing the total number of purchases made by a customer over a given time period by the number of years that have passed during that time period.
- Determine the average customer retention rate: This is the percentage of customers who continue to make purchases from your business over a given time period. You can calculate this by dividing the number of customers who made a purchase in a given year by the number of customers who made a purchase in the previous year.
- Calculate the CLV: Once you have these three values, you can use the following formula to calculate CLV: CLV = APV x Number of Purchases per Year x Average Customer Retention Rate.
This will give you an estimate of the value that a customer brings to your business over their lifetime. You can use this information to inform your digital marketing efforts and focus on acquiring and retaining customers who have a high CLV.