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There are thousands of entrepreneurs who struggle every year to find out the growth of any company. In the course of these discussions, managers come up with all kinds of numbers, measures, and metrics that illustrate the development and achievements of a particular company.
However, the metrics might not be the best gauge of what’s truly happening inside your company or people may use distinct definitions of the identical metric in a manner that makes it hard to apprehend the goals of the business.
Learn which metrics can help you to evaluate your marketing efforts.
Out of all important metrics, Customer Lifetime Value is an essential metric, about which you need to know everything.
Customer Lifetime Value (CLV or often CLTV), Lifetime Customer Value (LCV), or Life-time value (LTV) is a prognosis of the overall profit attributed to the entire future association with a customer.
Customer lifetime value can also be defined as the money value of a customer association, based on the present money value of the predicted future cash flows from the customer relationship.
If you want to grow your business, then you need customers. Obviously.
Consider the possibility that you do your business by concentrating on the wrong customers, or spending excessively to get a solitary client. Be that as it may, how would you know?
Everything returns to the main question: What is that customer worth to you?
This little query will characterize the amount you spend on marketing, the sorts of custumors you can reach, and how much cash flow your business makes. It’s truly damn imperative.
If you don’t know the Lifetime Value of your customer, this can cause your business a lot of problems.
Understanding the importance of Customer Lifetime Value: this crucial metric will help you answer key questions related to your business:
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Based on the calculation of Customer Lifetime Value, you can take various actions to increase revenues.
Though your goal will ultimately point to a common goal of growing your business and gain advantages from the resulting calculations. Lets take a look at benefits of calculating Customer Lifetime value:
Finally, How to Calculate Customer Lifetime Value ?
When calculating CLV there are many nuances to consider based on what the specific questions are that you want answered.
But the most straightforward way to calculate CLV is to take the revenue you
earn from a customer and subtract out the money spent on acquiring and serving them.
Calculate Customer Lifetime Value Formula:
Calculate Customer Lifetime Value = (Annual revenue per customer * Customer relationship in years) – Customer Acquisition Cost
Let’s Look at Customer Lifetime Value example….
Customers paid : 1000 per month
Average time that a person remains a customer : 3 years.
Lifetime value of each customer is (according to the formula above):
Rs 1,000 per month x 12 months x 3 years = 36,000.
This means each customer is worth a lifetime value of 36,000.
Facebook Lifetime Value Audience Feature
Customer lifetime value is a numeric representation of the net profit you predict will be attributable to a given customer over the duration of your relationship with them.
Breaking it down into a few factors:
Advertisers shouldn’t use their prediction for any one of theabove factors alone as a representation of a given customer’s lifetime value.
Advertisers are expected to combine each relevant estimation into a formula appropriate and suitable to their business goals and use the result produced by it.
For Facebook advertising, customer lifetime value is especially relevant for value-based Lookalike Audiences. If you add a customer lifetime value column to a file you’re uploading to create a Custom Audience, you can use that Custom Audience as a source for a value-based Lookalike Audience.
That Lookalike Audience will then be made up of the people most similar to your highest value customers. A regular Lookalike Audience (one that does not take customer lifetime value into account) can only find people similar to all your customers.
What if your business do not track customer lifetime value ?
Advertisiers can still use Custom Audiences(in facebook) and Lookalike Audiences to reach their customers and people similar to them. However, they won’t be able to use value-based Lookalike Audiences.
Advertisers can upload their customer lifetime value data as part of a customer file Custom Audience. They can use that Custom Audience as the source for a value-based Lookalike Audience, which is a group of people to target with ads who are most similar to the high-value customers they already know.
Different people calculate customer lifetime value in different ways. Here are some ways that you should avoid if you’re going to send us the data for use in a value-based Lookalike Audience:
Say you have 3 customers worth $100, $10 and $1, respectively, and you use a 1-5 rating system. Don’t send data to facebook where they’re rated as a 5, 2 and 1, respectively. This won’t work because the value isn’t proportional to the ranking. In other words, the $100 customer was factored by 20, but the $10 customer was only factored by 5 and the $1 customer wasn’t factored at all.
Say you have 100 customers and each one is worth between $200 and $1200. You rank them from 1 to 100. This won’t work because value isn’t proportional here either. It tells Facebook, if one customer is more valuable than another, but doesn’t account for a scenario where the number 5 customer is worth double what the number 6 customer is, whereas the number 20 customer might only be worth 1% more than the number 21 customer.
Upload the data as another column in a customer file you use to create a Custom Audience.
Below are tips for formatting the data, similar to the tips for other identifiers in the first section of this article:
To get started creating a Custom Audience with a customer value data column:
With your source audience ready:
Now that you have LTV Lookalike Audience in Facebook, you are ready to build ads and campaigns around it, test performance and optimize to maximize Return On Ad Spend (ROAS) just like with any other Facebook campaign.
This audience will be of great use to marketers to cash on the capability of their ongoing marketing efforts taken on their existing online and offline list of customers.
Do you still have difficulty to find out customer lifetime value? Or are you stuck o how to use it based on what types of results are you seeing? Any questions, drop in the comment section below.
Amol has helped catalyse business growth with his strategic & data-driven methodologies. With a decade of experience in the field of marketing, he has donned multiple hats, from channel optimization, data analytics and creative brand positioning to growth engineering and sales.
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