What is lifetime revenue? (CLTV-customer lifetime value)

Customer lifetime value (CLTV), also known as lifetime revenue, is a measure of the total amount of money that a customer is expected to spend on a company’s products or services over the course of their relationship with the company. CLTV is calculated by multiplying the average customer’s annual spend by the average number of years they are expected to remain a customer.

CLTV is an important metric for businesses because it helps them understand the value of their customer base. By knowing their CLTV, businesses can make more informed decisions about how much to invest in acquiring and retaining customers, and how to allocate their marketing and sales budgets.

To calculate CLTV, businesses first need to determine the average annual spend per customer. This can be done by dividing the total revenue generated from customers in a given time period by the number of customers in that time period. The average customer lifespan is then determined by dividing the total number of customer years by the total number of customers. To calculate CLTV, the average annual spend is then multiplied by the average customer lifespan.

For example, if a company has 1,000 customers who each spend an average of $500 per year, and the average customer lifespan is 5 years, the company’s CLTV would be $500 x 5 = $2,500. This means that, on average, each of the company’s customers is expected to generate $2,500 in lifetime revenue for the company.

In conclusion, CLTV, or lifetime revenue, is a measure of the total amount of money that a customer is expected to spend on a company’s products or services over the course of their relationship with the company. By understanding their CLTV, businesses can make more informed decisions about how to allocate their resources and drive growth.