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TL/DR Summary: If I get you 50 new clients this month, and the average client stays with you for 6 months and spends $50 per month, that means, I have added $15,000 to your bottom line. [50 X 6 = 300 | 300 X $50 = $15,000]
Why Knowing Your Customer Lifetime Value [CLV] Is Important
Businesses don’t want to spend their money and resources on acquiring customers that will not be profitable. They want to know how much they should invest in marketing activities that will attract the best customers.
Brand loyalty is one of the important and most challenging strong points for a business to achieve. The CLV provides a better dimension to customer relationships by making businesses aware of a customer’s worth, especially those considered loyal having high CLV.
How to Calculate Customer Lifetime Value [CLV]
Customer Lifetime Value is calculated by multiplying your customers’ average purchase value, average purchase frequency, and average customer lifespan.
Customer Lifetime Value formula:
CLV = Average Monthly Purchases X Average Customer Lifespan in Months