What Is LTV in Marketing?
Many people think about marketing in terms of simple sales. It’s tempting to think that marketers need to get to the right customers, convince them to buy the product, and move onto the next customer once that sale has been made. But long-term, successful marketers know single sales most likely won’t help you crush your marketing targets. That’s why marketers need to be concerned with LTV or lifetime value in marketing.
Life-time value in marketing refers to the total revenue a customer will predictably offer throughout their lifetime as a customer. Lifetime value is sometimes referred to as customer lifetime value (CLTV or CLV) or lifetime customer value (LCV). All of these are different ways of articulating the amount of money a customer will likely spend with your company over time.
LTV in marketing can be calculated using marketing analytics. When calculating LTV, you need to have three key pieces of information. You need to know a customer’s average purchase value, and you need to know a customer’s purchase frequency. Finally, you need to know the average length of time your customers remain customers or the average customer lifetime length. By multiplying these numbers together, the marketing team can determine the LTV of that particular customer.
Why is LTV in marketing important?
LTV in marketing is important because cultivating customers who will continue to purchase from your company can be an excellent long-term marketing strategy. LTV should ultimately be compared to another figure: customer acquisition cost or CAC. The cost of the marketing activities used to acquire customers initially should be lower than the lifetime value of your customers.
Focusing on customer retention can considerably lower customer acquisition costs and increase your revenue far faster than just focusing on attracting customers for one-time purchases. Cultivating returning customers is a sound marketing strategy because repeat customers are more likely to purchase than those who haven’t purchased from a company before. They are also more likely to spend more on additional purchases.
There are several ways marketing departments can target campaigns to repeat customers. They can offer discounts to customers for subsequent purchases or create loyalty schemes that offer returning customers more value over time. This type of messaging to customers who have previously bought products or services from your company can increase your ROI and decrease your CAC significantly.