The Customer Lifetime Value (CLTV) can be calculated by multiplying Customer Value and Average Customer Lifespan. Here’s a breakdown of how to determine each component and compute CLTV:
Steps to Calculate CLTV
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Calculate Customer Value:
- To find customer value, determine the average purchase value and the average number of purchases made by a customer.
- Formula: Average Purchase Value x Average Number of Purchases = Customer Value
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Determine Average Customer Lifespan:
- Calculate the average length of time a customer remains a customer.
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Calculate CLTV:
- Multiply the Customer Value by the Average Customer Lifespan.
- Formula: Customer Value x Average Customer Lifespan = CLTV
Example
Let's illustrate with an example. Suppose you have the following data:
- Average Purchase Value: $50
- Average Number of Purchases per Year: 4
- Average Customer Lifespan: 5 years
Using the above steps:
- Customer Value Calculation: $50 (Average Purchase Value) * 4 (Average Number of Purchases) = $200
- CLTV Calculation: $200 (Customer Value) * 5 (Average Customer Lifespan) = $1000
Therefore, the CLTV for this example is $1000.
In summary, the core equation based on the provided reference is:
CLTV = (Average Purchase Value * Average Number of Purchases) * Average Customer Lifespan
