One of the most important numbers to know in marketing, if not THE most important number to know, is the lifetime value of a customer.
Sometimes referred to as the LTV (lifetime customer value) or CLV (customer lifetime value), or LCV (lifetime customer value).
They all stand for the same thing, and that is:
What is the amount of net profit attributed to the entire future relationship with a customer.
Or in short, what’s a customer worth to your business?
This number can vary widely across businesses and industries but the underlying principle and practice remains the same.
Knowing this is important because it dictates what we can, and can’t afford to spend to obtain another customer.
If it costs us $1 to obtain a customer, and the customer is worth $2 over their lifetime, then we’re onto something!
This is why it’s so important to try to figure out (even roughly to start) the lifetime value of a customer. Once we know this we can apply it to all of our future marketing decisions and decide how much we’re willing to spend to obtain another customer.
The most common mistake isn’t overvaluing the lifetime value of a customer, but rather undervaluing them, or not assigning a value at all.
When this happens, businesses don’t fully realize and understand just how valuable, important, and profitable another customer would be to their business, and so they fail to take the necessary steps and actions to market to them, and lose out on potential revenues both now, and in the future.
Knowing what a customer is worth allows you to figure out how much you can spend to get another one.