What is Customer Lifetime Value in 3 minutes - YouTube

Hello everyone, welcome back to the channel.

In the last videos, I gave you several tips related to KPIs.

Today, I would like to talk about the most important one, which is

Customer Lifetime Value.

It measures how much profit your customers will generate

during their relationship with your company.

It also shows how healthy your customer base is,

and how likely your company is to grow in the future.

Let’s call it CLV from now on. I know some of your questions may be like

"What advantage would it bring me if I measure this KPI instead of others?", or

"How can I measure it?", or

"Is it valid for all kinds of industries?"

The truth is that Customer Lifetime Value (CLV) is a very important metric that can be used

to make decisions about sales, marketing, product development, and even customer support.

This KPI is critical to identifying the most profitable type of customers for your business

and those ones that will bring more results in the future.

For example, CLV can be helpful to design loyalty campaigns and promotions that benefit

those customers who bring prosperity to your business, so that your investment has more

focus and higher returns, always in the future.

We could say that the CLV measures how good your relationship expertise really is, and

therefore it’s the first metric you would need to implement.

Knowing the health of your relationship gives you an indication of what you can expect

in terms of revenue and cost.

So, how can you measure it, and how can you use Customer Lifetime Value for your business?

Let’s say that if you have never ever used this KPI before, you could start by measuring the

single values that we need in order to make the full calculation.

For example, you could ask yourself these questions: "how much do I need to spend to

get a customer”?

Or; What do I have to do to keep this relationship profitable?"

There are several formulas you can use to calculate the Customer Lifetime Value, but

I recommend to use a simple one, lets make it simple:

like the one, for example, that we use at Wonderflow, which is as follows:

CLV equals to profit per year multiplied by the average duration of the relationship

Soo....How do I find the average duration of the relationship with my customers?

So, to calculate this you just have to divide the number of your customers by the sum of

the years they have been your working with you.

Let me give you an example: you have 10 customers, and the sum of the duration of your collaboration

with them is 36 years.

The average duration of the relationship would be then 36 divided by 10, which is 3.6 years.

Now, let’s say that, on average, you sell your product for 5 thousand euros per year and

that to serve a client you spend 3 thousand euros.

Your profit would then be 5 minus 3, resulting in 2k net profit.

So, to obtain your customer lifetime value you just have to multiply

2k which is your profit, per 3.6 years,

which is the average duration, resulting

in 7 thousand two hundred euros,

which is your Customer Lifetime Value. Is it clear enough? I hope so

If not, I would recommend reading more at the link that you find in the description:

Well, I still hope you like this type of videos in which I try to explain complex concepts in

simple terms and in just a couple of minutes.

Please let me know what you think in the comments! And, see you soon.