When you talk about lifetime value, you’re looking at the entire customer journey with your business. This includes how, why, who, and when.
As mentioned before, you look at the average order value (per customer), the frequency of purchases, and the age of the customer.
To calculate CLV, you first need to calculate customer value by multiplying the average purchase value by the average number of purchases.
Customer value = average purchase value x average purchase amount
The formula looks simple, however, if you want
to get up to date and accurate numbers, you have to calculate at the individual level.
Another disadvantage of Historical CLV is that it only focuses on the amount of previous profits and fails to consider VP Design Officers Email List the actual value of new clients.
Predictive CLV influences predicted historical and retention behavior, enabling marketers to gain a variety of useful insights.
This answers the question:
Which type of new customer will bring you more profit?
Where does your business get the highest returns?
What are the key customer attributes that drive customer retention?
This method allows marketers to formulate specific models that can predict CLV for new clients or new clients, based on their buying patterns.
To use predictive CLV accurately you need
To find out the factors on which the client gives value
Find out what defines value and how it differs from different customers and segments
Determine the reasons why the customer changed his buying behavior
Due to price fluctuations (discounts, deals), determining the right predictive CLV can be tricky. That’s why there are two ways to calculate predictive CLV.
CLV = (Average monthly transactions x average order value) x average gross margin) x average customer age
This simple formula can be used if your customer’s annual profit is expected and consistent such as a subscription based CW Leads payment with only one to 2 tier options. But for complex factors like retention rates, promos etc. You can use the above formula as the gross margin contribution per customer or GM value and calculate it as: