Customer Lifetime Value(CLV)

As an entrepreneur, you need to focus your sales efforts on your most valuable customers. Valuable customers can take your business to the next level. Are you know the value of each customer has for your company?

Customer Lifetime Value is the total amount of money that you expect a given customer to spend on your business in his/her lifetime.This is an evaluation that measures the net profit or revenue that you earn from all relationship with the customer. It tells you how much income people bring in over the estimated route of their relationship with your company.

— HOW TO MEASURE CLV:

Before we take a look at the precise formula for calculating CLV, let’s have a look at the three important pieces of information that you’’ll need:

— Average Buying Value: To calculate ABV, divide total sales by the exact number of purchases.

— Buying Frequency: The number of times that a given customer bought from you in a set period. To calculate the buying frequency, divide the total number of purchases by the number of customers for the given timespan.

— Customer Value: The amount that a customer spends in a given period. A customer that spends more is more likely to give you money in the future too. To calculate, multiply the average buying value by the buying frequency.

A retention rate is also known as a loyalty rate. It measures the percentage of existing customers in a year (or period) that remain customers in a future year (or period). There is no consideration of new customers in this formula — we simply use the total customer base or we can use customers in a particular segment.