Here are some details to keep in mind
Posted: Sun Dec 15, 2024 9:36 am
Calculate the average lifespan of your customers
Estimating your customers’ lifetime is not an exact thing, but rather a prediction. Also, each business may have a different way of calculating their estimated lifetime.
A relatively simple way to calculate lifetime is to take all the clients in your portfolio and average the number of years they have been with you.
But what if I don't have several years of information on my customers?
An alternative way to measure the average lifetime of your customers is to divide 1 by the annual churn rate. That is, the percentage of customers you lose each year on average. If, for example, you have 100 customers and you lose an average of 25 customers per year, your churn rate is 25/100, or 0.25. If you divide 1 by that 0.25, you get an average customer lifetime of about 4 years.
To obtain an average lifespan, consider the following factors:
Avoid extreme cases and remove 10% of your longest-term clients, and 10% of your shortest-term clients.
If you have recurring billing, you can use invoices as a reference point to know if a client is active or not.
It is advisable to have management software that allows you to track the projects carried out.
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Calculating the cost of acquisition for CLTV
The other important factor is the acquisition cost. This is another indicator that can vary greatly from company to company, because it is tied to the marketing campaigns and sales channels you use.
To summarize the acquisition cost, you can use the saudi arabia mobile number owner name following formula:
Total cost of a campaign / Customers generated
For example: If carrying out a marketing campaign has cost you €500 , and has generated 8 new customers , the acquisition cost of each of those customers is €62.5 .
No, all customers have the same acquisition cost
As with lifetime years, try removing the highest 10% and lowest 10% of your acquisition costs. This helps you normalize the average.
It is advisable to keep track of the cost of all your campaigns and all your generated clients, to easily get an average.
CLTV and the time value of money
One last detail that we haven't taken into account, but which is very important, is the value of your money over the years . The basic CLTV formula doesn't consider macroeconomic aspects such as inflation, which can skew your results. Especially if you have very tight margins.
That is, the money you have today will be worth less in the next few years.
You can counteract this by raising prices, but your profit margin will probably not be exactly the same. When trying to make predictions about your future turnover level, always consider a safety margin.
Estimating your customers’ lifetime is not an exact thing, but rather a prediction. Also, each business may have a different way of calculating their estimated lifetime.
A relatively simple way to calculate lifetime is to take all the clients in your portfolio and average the number of years they have been with you.
But what if I don't have several years of information on my customers?
An alternative way to measure the average lifetime of your customers is to divide 1 by the annual churn rate. That is, the percentage of customers you lose each year on average. If, for example, you have 100 customers and you lose an average of 25 customers per year, your churn rate is 25/100, or 0.25. If you divide 1 by that 0.25, you get an average customer lifetime of about 4 years.
To obtain an average lifespan, consider the following factors:
Avoid extreme cases and remove 10% of your longest-term clients, and 10% of your shortest-term clients.
If you have recurring billing, you can use invoices as a reference point to know if a client is active or not.
It is advisable to have management software that allows you to track the projects carried out.
IMAGE
Calculating the cost of acquisition for CLTV
The other important factor is the acquisition cost. This is another indicator that can vary greatly from company to company, because it is tied to the marketing campaigns and sales channels you use.
To summarize the acquisition cost, you can use the saudi arabia mobile number owner name following formula:
Total cost of a campaign / Customers generated
For example: If carrying out a marketing campaign has cost you €500 , and has generated 8 new customers , the acquisition cost of each of those customers is €62.5 .
No, all customers have the same acquisition cost
As with lifetime years, try removing the highest 10% and lowest 10% of your acquisition costs. This helps you normalize the average.
It is advisable to keep track of the cost of all your campaigns and all your generated clients, to easily get an average.
CLTV and the time value of money
One last detail that we haven't taken into account, but which is very important, is the value of your money over the years . The basic CLTV formula doesn't consider macroeconomic aspects such as inflation, which can skew your results. Especially if you have very tight margins.
That is, the money you have today will be worth less in the next few years.
You can counteract this by raising prices, but your profit margin will probably not be exactly the same. When trying to make predictions about your future turnover level, always consider a safety margin.