Understanding what LTV is can be the best guide for evaluating your company's investments and for future campaigns. But that depends on the understanding and calculations that will define what has really been done and working in the company and what is not. So now see how to understand lifetime value and what to do with this metric.

As soon as a company starts thinking about its marketing plan, some items and metrics such as return on investment, conversion rate, bounce rate and CAC, for example, can start to be part of the company's plans.

Each of these metrics will represent something of the company's results, and they are made according to the numbers that the company had in each one of them in the last period.

The timing for these meetings and discussions about metrics and what to do with the results varies from company to company, but for this to happen it is of course important that the right people understand this data.

And one of these data is the LTV, or lifetime value, which is not only essential to understand what happened in the company in the last few months, but mainly to define the company's future actions.

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So, see now what LTV is and how to calculate it in the following topics:

• What is LTV?
• The Importance of Knowing LTV Marketing
• How to improve your company's LTV?
• Improve your LTV with a focus on the right customer

What is LTV?

The concept of what is LTV, or what is Lifetime value are the same and basically refer to value per customer lifetime, or the length of stay of the customer linked to your company and how much it costs and generates profit for that period .

The idea is that with this metric it is possible to calculate the results of the company's applications, such as marketing actions, for example.

Therefore, it is possible that the more time a customer spends with your company, the better and more profitable it can be, for example. So one of the main objectives of LTV is to be able to predict and develop actions based on those customers who have a better relationship in the company.

To conclude the clarification of what LTV is, it is important to emphasize the difference between it and CAC, which is the acquisition cost per customer, that is, it does not have to do with the time and profit of a relationship with a customer.

CAC refers to the company's expense to win over the customer, regardless of the relationship he may have with the brand after the first purchase.

So now that you know what LTV is, or what lifetime value is, we can teach you how to calculate lifetime value for your company.

How to calculate LTV

How to calculate lifetime value depends on some data, some of which may require more long-term information, so very young companies may find it difficult to perform the calculation.

To understand how to calculate lifetime value you will need the annual revenue values ​​per customer, an average lifetime value with the customer in years, and the acquisition value per customer.

And the formula for the calculation would be ANNUAL REVENUE x VALUE IN YEARS – CAC.

So let's assume that the annual profit per customer is R$5000.00, and that customers spend an average of 5 years in your company, and the acquisition value per customer is R$2500.00.

The account would be 5000 x 5 – 2500 = 22,500. And that result of 22, 500 would be your LTV marketing, that is, the lifetime profit of that customer.

But now that you know what LTV is and how to calculate LTV, we'll show you what to do with these numbers in the next topic.

The Importance of Knowing LTV Marketing

The biggest advantage of knowing how to calculate lifetime value lies in future projections. Understand how important and how much is excess for CAC expenses, for example.

With the result of LTV marketing, the company can answer guiding questions that are very important for the future of the company, such as:

• What is the best value to invest for customer acquisition?
• How much to invest in customer relationships?
• What is the profit amount for each new customer?

And so with the answers to these LTV marketing questions it is easier to design the company's marketing and action plans from that date with this data.

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How to improve your company's LTV?

Now that you know what LTV is and how to calculate your company's lifetime value, let's get to what really matters, right; how to improve LTV.

After all, no matter what time your business is in, increasing sales and profit is always the biggest management issue.

Then see some options that can be studied and applied to improve your company's LTV marketing.

Customer relationship

As we said, the meaning of LTV is related to the customer's time in your database and the profit he generated during that time.

So the longer he stays with the company, the better for LTV data, so it is important that the company strives to improve the relationship between brand and customer.

Therefore, investing in a good customer service and relationship system can create a relationship that is greater than simply providing a service, but making the customer a fan of the brand, reducing the chances of him thinking about ending the service with the company.

Fidelity program

So as we mentioned the relationship, a good loyalty program can be a good way to keep this customer interested in your company, even generating some benefit for him.

So a loyalty program can not only improve the relationship between brand and customer, it can also create advantages for the customer according to how long he stays with the company.

In other words, it serves as a motivation for the relationship to have a long duration.

Improve your LTV with a focus on the right customer

Now you know LTV, how to calculate and even how to improve your company's LTV marketing, you can start collecting this data within your company to improve lifetime customer value within your company.

In addition, you can take advantage of the meaning of LTV to study ways to work on the relationship that exists between you and your customers.

One last important tip of what can be with LTV marketing is that based on the results, your company can study the type of customer that generates the best lifetime value and thus use it as a model for research and greater investment in similar people.

Thus, the chances of an investment with a good return are greater if compared to campaigns with a broader target audience.

And if you want to know more tips to improve your business and increase your sales, keep following the Ideal Marketing Blog.