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Inbound Marketing Blog

How To Calculate Your Customers' Lifetime Value

[fa icon="clock-o"] February 7, 2018 [fa icon="user"] Jo Shaer [fa icon="folder-open'] customer lifetime value

Before we talk about the how, we should probably ask why should your Customers' Lifetime Value (LTV) matters to you or  your sales team? 

It is one of those 'big picture' metrics that keeps your Finance Director up at night but can often be forgotten by Sales. If your sales team is focused solely on hitting their current quotas, they're probably not looking at LTV and could be missing out on critical future opportunities.

The LTV is the estimated revenue that one of those sales will bring to your balance sheet during the entire span of their relationship with your company.


Is the Lifetime Value of a Customer important to YOUR sales team?

How long does it take you to turn an enquiry into a sale? Hours? Days? Weeks? Months?  There is nothing as emotionally stimulating as the joy of the close and the realisation that you just smashed your quota. 

But how do you feel about all that effort when that customer is just a one-hit wonder who never returns to buy from you again?  

Ah, the frustration of churn! Customer Services don't do their job and then it's down to Sales to pick up the shortfall on that month's revenue before the FD notices. The team needs to try to replace any clients who no longer like and trust you enough to buy from you again. It can be like being a hamster on a wheel.

But look at it this way. Your FD recognises that the money is in the ongoing relationship and your sales team should too!

For several reasons:

Improved targeting

When you can identify which types of customers have the greatest long term value, it is possible to actively target prospects who are most like them. 

Ongoing nurturing

When you continue to build your relationship with  your existing customers by helping them to:

  • understand other ways that they could use your product;
  • the best times to upgrade or extend what they have purchased;
  • recommend you easily to their friends/contacts/colleagues;

they are much more likely to love you enough to buy from you again.

how-to-calculate-customer-lifetime-value-LTV.pngIncreased word of mouth referrals

More importantly, they are much more likely to recommend you to their friends and colleagues - your nurturing activities can help to amplify the power of word of mouth and referral marketing because you are always top of mind.

Now isn't understanding the life time value of a customer a process to put some time and effort into?

How to calculate your Customer Lifetime Value

Precisely how it’s calculated depends upon your company’s business.

A SaaS company with its global reach will be different to a local consulting firm or a national widget manufacturer.

Here is a quick back-of-the-envelope formula.

LTV = Average Value of a Sale x Average Number of Repeat Sales x Average Retention Time (Months or Years ) for a Typical Customer

Whatever formula your company uses, LTV provides a good indication of the maximum amount your company should invest in acquiring customers.

It's also a vital metric in working out how Inbound Marketing could skyrocket your revenue using our Inbound Revenue Calculator.

Click the image below to find out more about growing your business.

Inbound revenue calculator


Jo Shaer

Written by Jo Shaer

"You're not like other marketing agencies, are you?" Nope, and we're proud of it. No jargon, no BS. We build websites with TLC - Traffic, Leads & Customers. From small beginnings - as a part time lollipop lady who designed websites and explained social media for the local business owners she was seeing across the road - Jo Shaer has grown Lollipop to a national company with its own office and 5 staff. She cares passionately about YOUR success. You can trust her to keep your business growing by doing the right thing, not the easy thing.