Lifetime Value (LTV): what it is, its importance and how to increase your company’s

Anyone who already lives in the world of digital marketing must already be used to so many different terms used on a daily basis. Lifetime Value, or simply LTV, is one of the most important of all.

This metric indicates the value of the customer’s life cycle within your company, that is, all revenue generated throughout the relationship with the company.

What happens is that not all companies know the real importance of this indicator. Its function is to measure the scenario of the last few months and guide your business towards the next decisions.

If you want to delve deeper into this subject, continue reading.

What is Lifetime Value?

Simply put, Lifetime Value is a metric that, literally translated, means “value per lifetime”. This is a calculation made by the company to discover the net value generated by a customer .

In other words, it is through this indicator that your company can measure how much money is invested by a client while the relationship or contract is in force.

The interesting thing is that Lifetime Value helps with customer retention. It’s a way for your company to stay up to date with how its sales strategies are performing.

Furthermore, this calculation can guide you when deciding on future investments.

How important is LTV for your business?

The use of LTV is very important, but much more than that, this metric can be even more efficient if used in conjunction with others. The great advantage is in predicting future investments.

An example of this is calculating CAC , or customer acquisition cost. For comparison purposes: the higher the LTV, the lower the CAC should be.

It is through Lifetime Value that it is possible to predict how much your customer spends and from what point in this life cycle profits begin.

Imagine, for example, a streaming subscription service. Most platforms offer a free trial period, in addition, there are advertising and content production costs.

In other words, for the first few months, it is very likely that there will be no profit from that customer. However, if we predict that the customer will remain a subscriber for a year, the profit will be greater than the investment made .

It is through Lifetime Value that we discover the value of future investments and what the resulting profit will be.

How to calculate Lifetime Value easily?

Before applying the calculation, you will need some information such as:

  • Average ticket ;
  • Average purchase time;
  • Average length of relationship with the customer;

Once everything is ready, the information is applied in a simple formula:

LTV= (Average ticket x Average purchase time) x Average relationship time

To make things easier, let’s give an example of how this account works with real values. Imagine that your company offers magazine subscriptions. Each monthly fee costs 100 reais, this is your average ticket.

As we are talking about a subscription, the average is that annual plans are more consumed, therefore 12 months would be the average purchase time for your customer. Furthermore, suppose that this client stays with your company for 3 years.

Therefore, we will have:

  • LTV= (100 x 12) x 3
  • LTV= 1200 x 3
  • LTV= 3600

In this case, your company’s LTV would be 3,600 reais. In other words, this is the amount that each customer spends with your brand during their life cycle.

What indicators does Lifetime Value depend on?

For LTV to be effective, you need to analyze it in context . As mentioned previously, Lifetime Value achieves better results when worked with other indicators.

Comparison with other metrics helps predict different scenarios and shows the current situation the company is in. This way, it is easier to know what needs to be improved.

Are they:

Churn Rate

This metric indicates the rate of lost customers in your portfolio. It is important to realize that the churn rate must be evaluated separately, as it goes in the opposite direction of Lifetime Value.

This is because, the higher the rate of lost customers, the lower your LTV will be.

Obviously, the same works in reverse. The higher your Lifetime Value, the lower your churn rate, so focus your efforts on customer retention and satisfaction.

Customer Acquisition Cost (CAC)

This is an indicator that should be compared with LTV frequently. When calculating the Customer Acquisition Cost, we understand how much the company spends to close a sale.

The CAC value should never be higher than the LTV. Not even coming close to that value. This is because, if your acquisition cost is close to or greater than the profit from having that customer in your portfolio, the profit will exist.

Average ticket

You’ve already realized that this metric is very important, right? The Average Ticket is part of the LTV formula.

This indicator is nothing more than the amount that each customer spends, on average, with your company. The higher your Average Ticket, the higher your Lifetime Value.

Remember to offer an excellent quality product or service, as this is the only way your customer will be willing to stay with your company longer and invest more over time.

Tips for increasing your company’s LTV

As we saw before, for investments to be worthwhile, you need to motivate the customer to stay with you for as long as possible. To this end, there are good practices capable of encouraging such behavior.

Bet on Content Marketing

Here on the blog, we always highlight the importance of investing in content marketing. This is a valuable resource that works regardless of the size of your business. And best of all: it can be applied to different platforms .

Whether through blogs, videos, email marketing or rich materials, content marketing is the creation of quality content. This type of production generates authority for your company and attracts more and more customers.

Don’t forget that this is a strategy that requires time and dedication. It is necessary to maintain consistency , in addition to quality, for results to appear.

Keep your customers loyal

Invest in after-sales. After a sale is closed, work continues to build customer loyalty. Train your customer service team so they can continue nurturing your customer base.

Neglecting this topic can cause the churn rate to increase and the Lifetime Value value to no longer be sufficient.

Invest in customer success (CS)

To ensure that customers are served in the best way possible, your company can count on a CS team. This team will ensure that any product or service contracted is being delivered with excellence.

They are also the ones who must serve the customer with due attention. Listening to customers and anticipating problems, as well as resolving them, is an essential part of this team’s work.

Focus on your most valuable customers

Over time, you will be able to identify your company’s most profitable customer. That is, what you spend most on your brand. Invest in it.

Find ways to show that you value him. Carry out actions for this customer, direct exclusive marketing campaigns to them, propose loyalty programs.

This way, you increase the probability of success and maintain a good relationship built on trust and mutual dedication .

Stay tuned for new technologies

Pay attention to recurring market changes. New technologies are implemented frequently and your company must know how to adapt to each of them.

Understanding Lifetime Value as not only a current investment, but also for the future, it is essential to follow trends.

Otherwise, your company could end up being left behind.

It’s time to increase the lifespan of your customers!

After reading this article, you already know how Lifetime Value works, how important it is and how to apply it with other metrics.

Gather the necessary information, do the math and draw up strategies for the future of your company. Monitor the indicators and evaluate the effectiveness of your investments. Keep in mind that this is a medium to long-term process and requires constant dedication.

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