Understand what is a Customer Lifetime Value and how to calculate it.
Table of Content
This guide is meant to provide basic knowledge on a complex topic in the most concise manner. Never take anything as the gospel truth, read from multiple sources before acting.
What is the customer lifetime value?
For any acquisition campaign to be profitable, the Customer Acquisition Cost (CAC) has to be lower than the Customer Lifetime Value (CLTV). The CLTV is a prediction of the net profit attributed to the entire future relationship with a customer and the CAC is the amount of money that needs to be spent to acquire an activate customer.
What are the factors to take into account and how do we weigh them?
Average cart value
Average lifetime of a customer
→ Customer Lifetime Value = average cart value * selling frequency * average lifetime
What is the use of the customer lifetime value?