Calculating Lifetime Value (LTV) is a method of assessing the long-term profitability of a customer. It takes into account not only their initial purchase, but also their predicted future purchases and their potential for referrals. By using LTV, businesses gain greater insight into whether it’s worth investing in acquiring a particular customer.
The value of a customer can be calculated using several criteria, such as taking into consideration their total net sales, the expected duration of their relationship with the business, and their average order size. By evaluating how much revenue each customer is likely to generate over time, businesses can make informed decisions on marketing budgets and focus their efforts on the most valuable customers.