LTV concept
What is LTV?
The LTV is the acronym for Lifetime Value (Customer Lifetime Value in Spanish). It is the concept with which the estimated income that a client can generate for a company is called during all the time that it maintains a connection with it, or what is the same, that it remains as a client.
It is a numerical value that is calculated using a very simple formula. To obtain it, you only have to multiply the average value of the customer's ticket (payment for service or for products) by the number of times that the purchase or contract is made per year and, this result, must also be multiplied by the total of years or months that it has what the brand in question offers.
Even if it is a figure, it is one of the most important for any company. The first purchase, that is, the conversion from lead to customer is the most difficult step. From there, the purchase index increases, which allows us to better understand this value and establish to what extent the investment has been profitable to attract said consumer.
If the LTV is low and the proposition to convert customers has been very expensive, it is likely not totally profitable. This parameter should be taken into account when investing in advertising campaigns and other strategies.
What is LTV for
The LTV is used to know to what extent a client or a group of these can generate income. Being a numerical value, it allows companies to carry out profitability studies and, fundamentally, viability when considering possible marketing strategies.
Knowing the Lifetime Value is essential for companies. It helps them to know to what extent they can get benefits from the consumers they convert into customers, as well as how to act to make them generate even more income. If the value is low, it is an indication that certain initiatives have to be rethought to obtain a higher profitability.
LTV Examples
To give examples of LTV, we just have to make a practical case. Let's imagine that in NeoAttack, our digital marketing agency, we have an average client who invests a total of 100 euros for each service that he hires in our company. At the same time, he turns to us a total of 6 times a year.
If, at the same time, we take into account that an average of 10 years can remain as a client, we arrive at a Lifetime Value equal to 100 x 6 x 10, or what is the same, a total of 6,000 euros.
