How to calculate the Lifetime Value and why it is key

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How to calculate the Lifetime Value and why it is key

The LifeTime value is one of the key concepts that any company has to handle correctly in order to know how to orient its marketing and to know the business forecast that it can develop. Therefore, we want to analyze its main points, explain how it works and see what possibilities it can offer us. What is the LifeTime value The translation into Spanish would be: the lifetime value of a client. That is to say: it is an approximate calculation in which we try to reflect the length of stay that a client will have with us. Obviously, it is an approximation with a considerable danish mobile phone numbers margin of error, a fairly wide estimate, since at first we do not know how much it can spend, what services it will end up requesting in the future or how it will react to our work. All in all, it is very useful when making strategic decisions . For example, in times of work overload, it is possible to objectively calculate which of the options in front of us promises to be more profitable. In this way, we can also understand with what priority we have to work with some clients or in what way it will be more profitable for us to deal with them. It is a term broadly related to the cost of acquisition or CAC .

How to calculate customer lifetime value There are different formulas that allow us to calculate this, but the most general would be the following: First, we multiply the average cost of that client (that is, the expenses for each purchase that he makes to us) by the assiduity with which he buys, and we multiply the result, also, by the life that we approximately attribute to that client . This figure that is thrown would be the approximation of the customer’s value in net numbers, that is: a regularized estimate of their activity where the extra expenses or restrictions that they may put on their work with us in the future are not contemplated. How to use life value strategically This is not a metric or a calculation to be taken in isolation. The main utility it has is that it clearly shows us how much investment it pays to keep in a client. Thus, the CAC (customer acquisition cost) always has to be less than its lifetime value . Therefore, this metric becomes a fundamental help and a clear guide on how we have to focus our advertising strategy and what type of investments we can afford.

In addition, it is a metric that can be polished or detailed over time. In this sense, the approaches that we make, a priori , about clients do not have to fit in with their final result. And thanks to checking these types of deviations, we will be able to approximate in a much more reliable way to future averages of average customer value. Once we start working with this data, the departments of the company will be reorganized. It will change from our way of measuring marketing investment to assessing the price we are giving our products, as well as the reliability Taiwan Database of the follow-up and loyalty that we make of our customers. The general conclusion is always that it is best to seek long-term clients . In this way, a solid business structure can be created and we will have the option of investing in good advertising that attracts the clients that really interest us. In conclusion, the LifeTime value is a piece of information that, as a company, we have to assign correctly to each client or to each client model with which we are going to work. In this way, we can think more in the long run and work strategically .

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