How much what you spend in marketing to attract a new customer? Here is an example Godaddy at the time I wrote this was offering an affiliate program to pay $120 to the advertiser for a customer who signed up for a year of hosting with them. The hosting plan this was for would be around the same amount, so why would Godaddy pay out almost the same out it is bringing in off a sale? CLV or customer lifetime value, they know that they can spend a certain amount to obtain a customer because over that customers time with them they spend a lot more than $120.
CLV is more important to some businesses than others, if you know for a fact that a customer will only purchase form you once and that is it, then there is no need for you to know this KPI. However if you continue to sell to existing customers than you need to know your CLV.
Calculating your CLV first you need to know what your AOV is you can check the previous post for that, if you have not read it already. Below is the formula.
AOV _____
X Times
Number or orders by a customer per year ____
X Times
Number of years for customer _____
= Equals
CLV _____
If you don't have a years of data that's fine just calculate with the amount of data you do have and as you get more data do the calculation again. To start you can do it every quarter for a couple years and then you will have a more accurate CLV. Good data is so important to marketing and knowing what to do with that data. I hope as you are reading this serious you can see that, I get excited about it because it gives you the power to successfully market your business.
I recommend that you start using KPI's and developing your current internet marketing campaigns. If you don't have the time to manage this yourself you should consider hiring a professional to take care of it for you. In the end the ROI or Return on Investment will be more than worth it.