Customer Lifetime Value
How is Customer Lifetime Value calculated?
Common methods of calculating a company’s CLV include:
- Average revenue per customer: Find the average revenue per customer per month (total revenue ÷ number of months since the customer joined) and multiply this value by 12 or 24 to get a CLV for one or two years.
- Cohort Analysis: A cohort is a group of customers who share a characteristic or set of characteristics. By studying cohorts instead of individual users, companies can get a picture of the variations that exist across an entire relationship with groups of customers.
- Individualized CLV: Companies often focus on determining the total value of customers by source, channel, or campaign. This could result in CLVs achieved through social media advertising being compared to those of other digital marketing strategies.
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