Customer lifetime value (CLTV) is one of the most important metrics to measure with your online business. By measuring CLTV in relation to cost of customer acquisition (CAC), businesses can measure how long it takes to recoup the investment required to earn a new customer, such as the cost of sales and marketing.
CLTV tells you how much revenue you can expect one customer to generate throughout the business relationship. The longer a customer continues to purchase from you, the greater their lifetime value becomes.
To calculate customer lifetime value you need to calculate average purchase value, and then multiply that number by the average purchase frequency rate to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by customer value to determine customer lifetime value.
However, this is only something you can calculate after your online business has made consistent sales over a while. Therefore, don’t worry about this if you have just launched your online business. You may want to come back to this after several months.