If you don’t know your customer lifetime value, you’re in trouble.
Lifetime value is the average amount a customer spends over the course of their relationship with your business.
LTV = AOV x gross margin (%) x customer lifespan (in months or years)
Here are two examples:
- For subscriptions: if your customers pay $10/month and stay for an average of six months, with a gross margin of 50%, your LTV is $30. Here’s the math: ($10 x 0.5) x 6 = $30.
- For products: if your customers buy five products worth $100 each in the first year with a gross margin of 25%, your LTV is $125. Here’s the math: ($100 x 0.25) x 5 = $125.
To increase your LTV:
- Increase your average order value (AOV)
- Increase the number of times people buy
