What is your average customer’s lifetime value?

Updated: Mar 16, 2019

Customer lifetime value is a key metric to know, understand, and create long-term strategies to increase the number.  Here’s the way to figure it out.  How much does your customer spend every time they make a purchase? How many times a year do they purchase? And how many years do they remain a customer?

Let’s look at an example of this using revenue.  Let’s say your average customer spends $100 per transaction.  And they buy once a quarter or 4 times a year.  And let’s say the average one stays with you for 5 years.  So your average lifetime value is $2000.

Now that you know customer lifetime value what could you do to increase that number?

You can entice your customers to buy more often by creating strategies and other offers to keep them coming back more often.  You could incentivize a higher purchase price by offering up sell and down sell offer opportunities.  Can you offer other things that complement your product or service every time they buy? 

And of course, you can keep your clients around for longer by increasing the value and services you bring to them and by keeping in contact consistently. Studies have show that about 70% of customers leave due to an attitude of indifference on part of the company.  Make it easy for customers to complain and be heard, so problems can be fixed quickly.

When you focus on these 3 components you can see how you can increase your lifetime value.

Imagine you focused on increasing each of these.  After 1 year you go from $100 to $125 per transaction.  And now instead of 4 times a year, customers buy 5 times a year.  And let’s say you’re able to keep your customers for 6 years.  You’ve gone from a $2000 lifetime value to $3750.  The revenue has nearly doubled without adding any more customers

I’m not saying this is a magic wand, it requires some different strategies than trying to acquire new customer’s but by breaking down the numbers like this you can begin to see how to apply different thinking to increase the lifetime value.

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