LTV

LTV (Lifetime Value) is the lifetime value of a customer. It is a metric in marketing that measures the expected profit that a company can get from a client for the entire time they are working with it. LTV is based on the assumption that customers can generate a constant stream of revenue over a long period of time. LTV allows to identify the most profitable customers, reveal the potential for increasing profits from the customer base and develop personalised client retention strategies.

LTV can be calculated in many ways, taking into account many variables, depending on the characteristics of the business. But a small set of characteristics for calculation is as follows: average purchasing cheque, frequency of purchases, average period of cooperation with a customer.

Here are the simplest LTV formulas:

• LTV = Average monthly revenue per customer × Average duration of co-operation
• LTV = Average sales value × Average number of sales per month × Customer retention period in months

The higher the LTV, the more important the customer is to the company. And the more the company can invest in attracting and retaining them.