What is lifetime value?
Lifetime value (LTV; also referred to as customer lifetime value/CLV) is a key metric that measures the average amount a person spends with a business throughout their customer lifespan, or the amount of revenue a business can expect from the average customer. To better understand gross margin and net profit, this metric should always be considered as it relates to customer acquisition costs (CAC). Tracking LTV can help merchants identify high-value customers and help refine their approaches to both acquisition and retention. At Recharge, LTV is calculated by dividing the annual revenue per user by churn.
Strategies for increasing customer lifetime value (CLV)
Strategies to boost customer retention are key for increasing the average value of a customer. For example, creating a customer loyalty program or using a loyalty platform offering users special perks like discount codes and early product releases can keep them around longer. Strategies for boosting average order value, like cross-sells and upsells, can boost CLV. Additionally, properly setting customer expectations with the digital experience in mind and making offerings as flexible as possible can boost retention and strengthen customer loyalty.
In the ecommerce subscription industry, research shows that LTV is on the rise. In Recharge’s latest State of Subscription Commerce report, we found that customer LTV grew an average of 11% across verticals.