Customer Lifetime Value (CLTV) is a vital marketing metric that predicts the potential profit a particular customer can bring to your business.
The core concept behind CLTV is to calculate the amount of money a client can potentially give your company during the entire relationship to determine whether a given customer is profitable for the business.
A clear indicator of the client’s profitability is received through a sophisticated analysis of his or her LTV compared to CAC (Customer Acquisition Cost – the amount of money you spend to acquire a client).
Techniques for calculating customer lifetime value
The prediction model can be quite simple – e.g. take an average amount of money a client pays you each month, multiply the sum by the contract duration, and you will get a customer’s LTV.
For more accuracy, businesses use more sophisticated predictive analytics models.