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Definition: It is an estimation of how much revenue a company can expect to earn from the sale of products or services to a given customer over the course of their lifetime.


Every entrepreneur is constantly looking for ways to grow, expand, and maximize their business.

One way to do this is by understanding the different metrics that are used in marketing and sales.

Lifetime value (LTV) is a very important metric that helps businesses grow by understanding their customers better.

It also helps in assessing a company’s performance and deciding whether or not to offer deals or discounts. 

Some companies use LTV to forecast business strategies, analyze customer data, and find new ways to increase their company’s LTV. 

It can be computed using the formula:

LTV = Average Order Value  x  Purchase Frequency  x  Customer Lifespan

Why is it important?

Companies use this information for many purposes, including setting prices, deciding where to spend marketing money, and examining potential investments.

It is also important in industries like software development, where companies sell subscription-based products and software updates.

According to Corporate Finance Insitute, there are two factors that could affect your LTV: churn rate and brand loyalty.

Churn Rate

Churn rate refers to when a customer stops purchasing goods or services from your business. 

This could happen if you are not providing enough value in terms of service quality, product features, price, etc., compared to other competitors. 

The higher the churn rate, the more likely it will negatively affect LTV because of lost revenue and marketing costs.

Brand Loyalty

Brand loyalty refers to how much consumers like a brand over another one. 

It can also refer to how likely people will buy products that have been advertised by a particular brand. 

If customers don’t feel loyal towards your company, they may be less inclined to purchase your products. 

What are ways to increase LTV?

In order to increase your LTV, you need to know what it takes to sell more products/services in the long run.

This will help you understand why some companies are successful while others fail. 

It may involve a series of trial and error but the end results are always guaranteed to surprise you.

Develop a retention strategy

Try to identify which customers are most valuable (those with high LTV) and focus on retaining those customers instead of chasing after new ones. 

Offering additional benefits or services to your clients may also increase their trust in your brand, like a free shipping voucher or a discount coupon, for example.

Use social media marketing

Social Media Marketing is the use of social media to promote a product or service. 

Companies are now using this marketing technique for their business to reach out to customers and potential customers.

Upsell and cross-sell

Offer customers additional complementary services or products when a customer buys something from you. 

This is is a very effective way to increase sales because it makes the customer think of other things they might need in addition to what was originally purchased. 

Referral Program

Referral programs have become a common way for businesses to strengthen relationships and grow their customer base.

A referral program is an effective marketing strategy because it allows companies to give incentives to customers who refer new ones.

The benefits for the business are numerous, including increased sales, word-of-mouth promotions, and brand development.

Improve email marketing strategy

Email marketing is an inexpensive and versatile tool for promoting company products and services.

With proper planning, it can help businesses generate higher revenue and improve customer loyalty. 

Increase customer engagement

Increasing customer engagement can be done through social media platforms such as Facebook, Twitter, Instagram, etc.

This helps in building a strong relationship with the customers which ultimately leads to increased sales.

Acknowledge customer feedback

If you want to retain existing customers, make sure they feel valued as well as satisfied by your business.

Acknowledging their comments will help them know that you care about them and are willing to listen to their needs.

Upgrade your product

Adding another feature that is valued by customers or improving the quality of an existing feature are great ways to improve your products.

A good way to start this process might be to create a list of all the features you offer and then determine which ones need improvement.

You can also use customer feedback to help guide you here. 

If there’s something people really like but don’t see being offered often enough, consider adding it to your offering.

Improve customer service

Customers are the backbone of any successful business. 

To keep customers happy and engaged, your company must meet their needs and desires by improving your services.

Whether they make a purchase or not, you need to provide them with the best possible experience to get them to choose your brand over others.

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