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Customer Lifetime value in marketing

Customer Lifetime value in marketing

The customer lifetime value is an account for a customer, taking in ongoing sales and marketing expenses, operating expenses and the cost required to manufacture the product and services the company is selling. It’s still important to find the new customers for the growth of the company, but optimizing the lifetime value of an existing customer is also essential for a company to sustain a viable business model.

CLTV assists marketers in optimizing their purchase and maintenance strategies. Customer ROI applies to the value of each customer following any investment. The ROI of the high lifetime value customer with the following formula:

                               Customer ROI = Total Spend – Marketing Spend

Increasing the CLTV is an important aim especially in e-commerce and online marketing. It is demonstrably a part of the model used by many successful players in e-commerce. Because the CLTV is a composite and for a hidden key figure, there are many possibilities for errors to arise. The first is the use of the CLTV as a budget estimate for online marketing, the second is the use of CLTV as a general control mechanism. The customer lifetime worth can best be explained as an investment in customer relations. In comparison, we have future ensuing costs that can be required throughout the client relationship. 

The customer lifetime value as the target value is no small matter. The model implies that acquisition costs and income from customer relations must be dependent on each other. Therefore, this relationship must also be identifiable.

First, calculate the lifetime value by multiplying the average value of a sale, the average number of transactions, and the average customer retention period.

Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period

Customer Lifetime Value = Lifetime Value × Profit Margin

The company revenue growth is directly correlated to sales and marketing expenses. If revenue decreases, but the sales and marketing expenses continue to expand. But, the profit margin will be down and could result in loss. Tracking customer lifetime value allows you to measure the results of your different marketing channels. Testing new channels. A/B testing strategies, and optimizing for conversions will allow scaling of sales and marketing.

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