As a business owner, you’re likely looking for sustainable ways to grow. And while there are many ways to accomplish your goals, you’ll want to track certain metrics along the way to assess your progress.

One of those metrics is lifetime customer value. This measurement can tell you a great deal about your clientele and what they’re worth to your organization, as well as how you can maximize profitability in the long run.

Let’s take a closer look at lifetime customer value and why it matters so much for your business.

What is Lifetime Customer Value?

First, let’s define what this metric is. Lifetime customer value – sometimes referred to as customer lifetime value, LVC, CLV, or LTCV – is essentially how much money a customer is predicted to spend with (or generate for) your business over the course of your relationship.

This monetary value is merely an estimate, but it can vary quite a bit depending on a number of factors. We’ll get into those when we discuss how to calculate LVC. But before we do, you may be wondering why this metric really matters.

Why is LCV So Important?

LCV isn’t necessarily more important than other metrics you might track, like the average number of new customers you bring on per month or the average invoice value you send out.

But LCV is special because it combines several metrics you may already be tracking to tell you more about where your business might not be reaching its full potential.

The longer someone remains a customer with your business, the more money they’re likely to generate. As such, a higher LVC number typically correlates with higher customer satisfaction and loyalty. Conversely, a lower LVC will indicate a high likelihood of churn. 

Understanding more about the value of your current customers can tell you a lot about where you are, where you’d like to go, and how you can get there.

For example, determining you have a low LCV might indicate that you’re spending too much to attract customers who aren’t in it for the long haul. You might be allocating a lot of resources to sales and marketing just to lose out in the end when customers leave early on.

Having a high LCV, on the other hand, can let you know you’re on the right track. You’re attracting customers who love your business and who will help you maximize your profits. 

Since having a high rate of churn will make it difficult for your business to grow, you’ll want to access data that can reveal how your customers are likely to stick around and how much they’re likely to spend over time. Using this data, you can find qualified leads more readily and confirm that you’re allocating funds in a way that will pay off.

Once you know your lifetime customer value, you can choose to nurture the relationships that are worthwhile and concentrate on acquisition before your current customers churn out.

How Can You Calculate Lifetime Customer Value?

It’s clear why lifetime customer value matters. But how can you calculate this metric for yourself?

Some business owners rely on complicated formulas to determine this value. One way to measure it is by multiplying your average order or invoice total by the number of purchases made in one year, multiplied by your average annual retention rate. There are other formulas you can use, as well, but some are even more complex.

A much easier method is to use an LVC calculator tool. All you’ll need to do is plug in a few known values (like customer lifespan, median invoice, monthly sales and marketing costs, and new customers per month) into the calculator. Then, the tool will do the work for you. 

In just a few seconds, you’ll reveal some important truths about your business. And if your LVC isn’t where you want it to be, you’ll know to focus on customer service, remarketing, or new sales strategies to improve it.

Add LVC to Your Metric Tracking For Long-Term Growth

If you’re looking to grow your business in 2022, you need to know where you currently stand. Gaining insight into your current clientele can help you make smarter decisions that lead to success. Be sure to add LVC to your metric tracking to view the bigger picture.