Lifetime value (or LTV) is the amount of money the customer will spend on your brand throughout their lifetime. This metric is one of the most important in eCommerce and affiliate marketing specifically since it shows:
- whether it is worth investing in customer retention
- how well your marketing is working in terms of creating lasting bonds with your customers
- whether your product or brand is good enough to get the second chance
- define customer groups who tend to spend less
In order to find out the lifetime value, you have to multiply together:
- average order value (find it out by dividing your revenue by the number of orders during a certain time period)
- purchase frequency (find it out by dividing the number of orders by the number of customers during the time period)
- average customer lifetime (find it out by dividing the average number of days between the first and the last purchase by 365)
In order to increase the lifetime value and thus save on acquiring new customers, a brand can:
- work on the quality of the onboarding process
- create personalized content for existing customers
- offer high-quality customer service
- collect feedback and improve based on it
- up-sell and cross-sell
