Accelerating Business Growth

Friday, February 17, 2006

How much is the Life Time Value (LTV) of your customer?

For that matter what is Life Time Value (LTV) and why is it so important?

Well, the lifetime value of your average customer is the income you expect to generate from the customer for the duration of time they do business with you. Let’s look at an example – imagine you run a Hair Salon with the following situation:

+ The average cost for a haircut is £20
+ Each client has a haircut on average every 6-7 weeks, therefore on average 8 times per year
+ Each client stay with you for an average of 4 years

Therefore your LTV for your average customer is:

£20 x 8 (no. time per year) x 4 (no. years) = £640 Average LTV per person!

Now this gives a very different perspective to the value of your customers. If we see them as merely being worth the value of each individual transaction then how can we establish how much we’re willing to spend to attract a new client in the first place?

I leave that with you as food for thought!


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