your company know how much customers spend on your products during their purchasing journey ? If you don't know the answer, it's high time you learned and calculated your company's lifetime value
Calculating how much each customer generates is essential for the company and, more than knowing formulas, it is necessary to understand the real impact of this metric .
Read our article until the end and learn what lifetime value , how to calculate this indicator and its importance!
What is lifetime value and how to calculate it?
More than knowing how much revenue your customer generates and how much they invest, it is also important to identify opportunities to strengthen the relationship between them and your company and encourage them to invest even more in your product or service .
That's why lifetime value is an important metric for planning and collecting results from a company's actions.
Lifetime value is the value of the customer's life cycle, that is, how much a customer spends with your brand throughout their relationship with it .
To make it easier to understand, let's give an example.
Imagine that your customers' average monthly spend on your products or services is R$300. This amount is paid monthly, that is, 12 months a year.
Also consider that customer relationships last about 3 years, from purchase to cancellation.
Multiplying all these numbers, we calculate that the lifetime value of your customers is R$10,800.
Therefore, the formula used to calculate lifetime value is:
LTV = Average ticket x Number of purchases per year x Contract duration
Lifetime value is a calculation based on the length of the relationship, so it changes easily with changes in strategies and sales.
It is important to always redo the calculation to ensure greater assertiveness of results.
This indicator is essential for the health of your business. After all, knowing how much each customer spends on average on your product can help you set marketing budgets, forecast revenue, and identify gaps and opportunities.
Like any other metric, lifetime value is important, but it cannot be considered alone, but rather analyzed within a context , associated with other relevant metrics, such as churn rate, customer acquisition cost, and average ticket.
Why is it important to calculate LTV?
Now that you understand a little better what lifetime value and how it is calculated, you must have realized how this number can help you make a series of decisions , right?
As we mentioned, when used in conjunction with other metrics, especially CAC (Customer Acquisition Cost), LTV helps you understand whether your company spends more to acquire or retain customers.
With numbers in hand, it is possible to analyze:
- Amounts invested in acquiring and retaining a new customer (remembering that the cost of acquiring new customers cannot exceed what you spend to retain them);
- Length of customer relationship with your company;
- Profitability that new customers will bring;
- Marketing budget targeting
- Improvements in the sales process.
How to increase the company's lifetime value
The goal of any business is to ensure that customers maintain a relationship with the brand for as long as possible and that the value invested increases over time .
We know there's no formula for this to happen, but some techniques and practices can help your organization.
Check out what we have in store for you!
Invest in content marketing
When executed well, content marketing has the power to attract many customers, regardless of your niche.
It's important to develop strategies and understand what's worthwhile for your company. Whether that's creating a blog , focusing on social media, investing in SEO, or working on more newsletters, for example .
The essential thing is that this sector is not neglected and that there is planning, execution and analysis of results.
Focus on loyalty
For lifetime value to achieve positive results, time is crucial. Therefore, it's essential to invest in customer loyalty .
Loyalty and rewards programs are interesting for this ongoing effort.
These strategies encourage purchases and offer benefits to consumers, who will be more willing to do business with your brand again.
Repeat customers are always more profitable than one-time buyers. Retaining a customer costs less than acquiring a new one.
Invest in customer success
Relationships and customer success are closely linked and require attention throughout the entire purchasing journey.
More than a good product or service, it is necessary to offer good experiences to the public.
Focusing on customer success ensures that the company delivers value, understands their pain points, anticipates problems, and prevents them before they occur .
Understanding the customer and having a team prepared to provide support is essential and can strengthen the relationship and, consequently, lifetime value .
Count on a CRM
To offer good customer service solutions, you need to be aware of journey and understand their needs during each interaction.
The larger your audience, the more difficult it is to do this control manually, so having CRM (Customer Relationship Management) software can help you make periodic strategic contacts to identify satisfaction levels and new business opportunities .
Conclusion
Measuring the results of any action is essential within companies. Decision-making requires basing it on real numbers and results.
By understanding more about lifetime value, many decisions can be made more strategically and other efforts can be better targeted.
Knowing how much a customer invests in a business is crucial to understanding how they can spend more and generate more profit—which is, after all, the goal of business, right? Have you already calculated lifetime value in your company? Now that you know more about the topic, watch our webinar on customer experience marketing to understand how this strategy can improve your organization's results!
