Customer Lifetime Value (CLV) is one of the most important metrics for shaping your customer acquisition strategy. CLV gives advertisers the big picture beyond just a last-click and first sale model that many ecommerce operations work to analyze.
Specifically, CLV is a prediction calculation of the net profit attributed to the entire future relationship with a customer or the known revenue value of customers since their first purchase fitting different user profiles from which one can derive an average. CLV is also an important business concept because it encourages companies to shift their focus from profits and revenue on a single sale to developing long-term customer relationships.
How do you calculate Customer Lifetime Value?
The most basic way to calculate CLV is to take the revenue you earn from a customer (or cohort of customers) and subtract the money spent on acquiring and serving them.
The total average is from dividing the total net revenue (after the costs of acquiring customers) by the number of customers.
Because you as a business are, via CLV, looking at the full value of acquiring each user, you can have more room to push bids and budgets for new users in the knowledge of how many times they are likely to buy and how much revenue you will probably get from them over time.
Using this metric and your collected user data from both internal and other analytics sources, you can slice and dice this collated information in many ways for extremely useful insights such as:
# What product, when bought by a new user, tends to be linked to a high CLV?
# What coupons bring you the highest CLV customers?
# What times of day or days of week yields users with the highest CLV?
# What geographies bring the highest CLV customers?
# What channels are involved in the most repeat buyers?
# How well do remarketing ads to existing customers work and through what channel (email, display, search etc.)?
What does CLV mean to Multi-Channel Attribution?
A lot of money is spent on a range of advertising channels by medium-to-large businesses and much of it is being delivered to people who have already been customers. Determining what such customers have seen prior to repeat buying is as valuable as knowing what new customers have encountered before becoming a customer.
Through this tracking of both online and offline advertising and sales, multi-channel attribution can help you accurately determine the customer lifetime value. If you track offline sales too, this extra data could lead to higher budgets on certain marketing channels because users who shop both offline and online are likely to have a higher CLV.
ESV Analytics, our multi-channel attribution and analytics tool can help you track users across devices and channels through combining their interactions with your website and messaging data with both online and offline sales to give you as complete CLV picture.
If you want to know more about CLV and how we construct that picture for our customers, let us know! Follow us on LinkedIn or Tweet at us!