What is lifetime value?
In marketing, customer lifetime value (CLV or often CLTV), lifetime customer value (LCV), or lifetime value (LTV) is the present value of the future cash flows attributed to the client during his/her entire relationship with the company. CLV is a not a traditional CRM key performance indicator because of this particularly troublesome as this metric is future looking, identifies both the degree of customer-centricity along with customer upside potential, and can be a catalyst for spurring increases in customer share, customer retention, margin improvement and top line revenues.
The simplest way to estimate lifetime value: Plug actual or expected numbers into the following equation:
LTV = (Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)
An easy example would be the lifetime value of a gym member who spends $30 every month for five years. The value of that customer would be:
$30 X 12 months X 5 years = $1800 in total revenue (or $360 per year)
Now you can see even from this hypothetical example why many gyms offer a free starter membership to help drive traffic. Gym owners know that as long as they spend less than $360 to acquire a new member, the customer will prove profitable in a short amount of time.
What is lifetime value Report(BETA) in Google?
The Lifetime Value report is somewhat self-explanatory – it gives us a way to measure the lifetime value of a user – which in turn allows us to determine the CPA (Cost Per Acquisition) and the overall effectiveness of our marketing campaigns. It also makes it possible to compare the CPA for different sources, channels, and mediums.
Is a particular campaign or medium more efficient than another? Perhaps you are wasting money on a source which isn’t providing an adequate return to justify the expenditure? This report will give you the data to work these things out.
How does the lifetime value report work?
The x-axis of the graph represents 90 days and can be viewed in daily/weekly/monthly increments. The starting date is the date of acquisition (which can be anytime during the Acquisition Date Range selected), and the graph shows how the cumulative metric values change over time.
In short, you pick a range of dates for when users were acquired, and the report will show you the average of whichever metric you have chosen for the users that visited the site for the first time between those dates.
Here are the metrics currently available in the Lifetime Value report:
- App views Per User
- Goal Completions Per User
- Revenue Per User
- Session Duration Per User
- Sessions Per User
- Transactions Per User
How can you use this report?
There are many ways you could use the data from this report. Here’s an example: say you had a payday campaign running on the last Friday of the month. You could select that date as the acquisition date, choose Revenue Per User as the metric and the report would then show you the average Lifetime Value of the users acquired on that date based on their interactions since then.
Once you have some idea of the lifetime value of your customer, you have two options in deciding how much to spend to acquire him or her:
Allowable acquisition cost: This is the amount you are willing to spend per customer per campaign — as long as the cost is less than the profit you make on your first sale. The allowable acquisition is a shorter-term strategy that makes the most sense when cash flow is a concern.
Investment acquisition cost: This is the cost you are willing to spend per customer knowing that you will take a loss on an initial or even subsequent purchase. However, you have the cash flow and other resources to absorb your initial marketing investment with this longer-term strategy.
Customer Lifetime Value Benefits:
Regardless of its potential challenges, customer lifetime value (CLV) is a powerful tool and a meaningful marketing metric – sometimes referred to as “the golden metric.” In particular, it helps the marketer to:
- Measure and demonstrate the bottom-line financial impact of marketing activities,
- Precisely align marketing programs with financial objectives and targets,
- Focus on marketing from a marketing ROI perspective by determining the optimal balance between acquisition, share-of-customer, and enhanced loyalty goals, increasing customer profitability over time
- Ascertain the impact of internal marketing programs, as well as competitive and environmental factors on long-term customer profitability,
- The stress testing of various marketing goals and environmental impacts,
- Balance the competing needs of short-term profitability and longer-term goals,
- Understand the bottom-line profit contribution of different customer segments,
- Demonstrate a long-term financial return for a range of marketing investments.
Feel free to leave your comments below: