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How to Calculate Lifetime Value of Customer?

So, what is one of the most important things a company must look into to strategize their plan of action like how much to spend to generate a customer, what should be the pricing of subscription plans, the duration of the subscription & much more.
YES! The Lifetime Value of Customer (LTV), means the estimated amount a customer will be spending on a company for their products.
So, let’s see how to calculate this in an easy & comprehensive manner. 

Calculating Lifetime Value of Customer (LTV)

Lifetime Value of CustomerGoing for terms,
Amt. of Purchase (in $) = Average Amount per Purchase made by the customer. To take as a measure you can use 1 month, 3 months or annual basis.
Frequency = Average No. of times purchases made in a year.
Term = Expected year of subscription.

Let’s take an example, Customer A bought a monthly subscription of $100 & the company calculated that a customer spends an average term of  8 years with customers subscribing to it every month.
So,  Amt. of Purchase = $100, Frequency = 12 & Term = 8 years
Hence, Lifetime Value of Customer A = 100*12*8 =$9600.

How does LTV help?

This calculation helps the company in the following ways:

  • Deciding on the spending required for generating leads and creating customers.
  • Pricing of products with time for which it should be provided.
  • Efficiently growing up the business.
  • Also, making the product beneficiary for the customer.

So, in this simple way you can calculate the Lifetime Value of the Customer.
Hope you liked it.
Also, look for Prospectss to help you out in finding Leads & Outreach with many amazing & user-friendly tools.
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