Life Time Value

Life Time Value or LTV is the perceived profit value of a financial relationship between an organization and one of its customers over the lifetime of the relationship. This is considered the lifetime value of a customer.

Since a satisfied, returning customer requires less investment in marketing and resources, it is considered a barometer of how strong an organization truly is and how successfully it can repeat a quality experience for its customers.

The lifetime value of a customer is often lost in the desire to acquire new customers; since significant time and resources are often spent in customer acquisition. This same marketing is considered to be reinforcement, when current customers may have different vantage points than current customers.

Action Step

Take a customer with whom you have had a regular business relationship greater than three years. Evaluate what their annual profit for your organization is in a year. Now project this out with modest increases over 5 years, 10 years and so on. Look at what you are doing to maintain that customer's business, Reflect on if you were to lose that customer, how much time, effort and expense would it take for you to replace them.

Plan on looking at your current longest customer or clients and consider how much that customer brings in each year. A number of strong customers who use your products or services repeatedly can make the difference between paying your operational and administrative expenses and having to divert resources into customer acquisition through marketing and sales.

How much of our annual gross revenue is fulfilled by existing customers?
What is our cost to acquire a new customer? How do we effectively spend these resources?
Are there customers who cost us money or whose goals and objectives are different than our current ones?

What is the LTV of your most profitable clients?

Budget: Priceless... OK a bit of research. $100 - $500 yearly