How to calculate lifetime value
However, not everyone has the same affection for algebra, trigonometry, and abacuses as I do. For them, calculating something like how much you can expect a customer to spend at your business (over a set period of time, not just once) can be daunting. Depending on how many layers you want to add, calculating the lifetime value (LTV) of a customer can be admittedly daunting. Depending on how many layers you want to put on the calculation, it can admittedly be daunting. However, it be a great tool as it can tell you how much to spend on customer acquisition, whether you should boost your retention efforts, or if your margins are too low. The Equation: Average Sale * Number of Transactions * Time The Explanation:
Remember, you can make this calculation for any product, season / time (such as lunch vs. dinner), or customer segment served. The Example: A person goes to a salon to get a haircut every 3 months. They spend $30. They attend that salon for 3 years. Their LTV = 4*30*3 = $360 in total revenue. A couple of final thoughts:
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