What is CLTV?
Having a high Value of Customer Lifetime (CLTV) is an indication of how well a business is doing and how well it can retain customers by boosting the loyalty of current and potential customers. A customer lifecycle value service is determined by the net amount they pay during a period of time when they use the company’s products or services. By planning and improving the productivity and efficiency of various activities, companies can understand and monitor the value of customers along their customer journey.
The Customer Lifetime Value (CLTV) deviates from the Customer Lifetime Revenue (CLTR). Customer top-line revenue (CLTR) is the top-line contribution from the customers, while Customer bottom-line profit (CLTV) is the profit contribution after removing the Cost of Goods Sold (COGs).
Calculating CLTV
A company must be able to estimate the CLTV of both existing and prospective customers over an extended period of time along with measuring and tracking the CLTV of the existing customer base. In predicting the CLTV, you must take into account the following factors:
- Demand Prediction
It is necessary to estimate new acquisitions to understand future demand. It is important to determine the future demand with todays track of goods through inventory management system for your business through a variety of marketing campaigns and/or channels when planning the marketing budget and activities. Demand forecasting can take several forms.
- Spending on marketing is expected
- to generate higher CPAs
- depending on the frequency and type of campaigns deployed
- Traffic (Pageviews, etc.) expected (frequency, type, etc.)
- A conversion rate (such as the sign-up rate for guests, CTR, etc.) promotes a website’s conversion.
2. Predicting Retention Rate
You can accurately predict your customers’ likelihood of staying with your company by understanding and monitoring the retention rate. If you segment your existing clients, you may find that they retain clients in different ways. In this case, you will need to apply the proper retention curve to your customer segments or cohorts. A further benefit of leveraging advanced analytics and machine learning is that you can identify customer profiles, behaviors, and predict how likely it is for existing and potential customers to stay with the business or depart. Further, insight is provided that allows business teams to communicate with potentially churned customers and engage them with relevant offers.
In summary, CLTV measures how well a company is doing at keeping customers coming back and making repeat purchases. To achieve efficiency and profitable growth, you must calculate customer lifetime value (CLTV) and estimate the CLTV for future demand.
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