Customer lifetime value is the total revenue earned from a single customer over their entire time as a customer.
It can be tracked as it happens, if you have ecommerce analytics tracking in place:
CLTV = Order 1 + Order 2 + Order 3 ……
Or it can be estimated with these formulas:
CLV = Total Revenue / Total Number of Customers
CLTV = AOV x Average number of orders per customer
CLV = AOV x order frequency per month x lifespan
Customer lifetime value is important because the higher it is, the better return on marketing investment you get. Every consecutive order makes up for the initial acquisition cost paid.
A high CLTV also is a sign that people like your products and they shop from you a lot. So you don’t need to go out and get new customers all the time to keep generating sales. Working for CLTV means increasing customer retention.
Research on ecommerce brands recently found the following average CLTV by niche:
|High-performance sports clothing||$161|
|Own food products||$63|