<\/span><\/h2>\n\nThe formula used to calculate customer lifetime value can vary slightly depending on the business and the available data. However, the most common approach is:
\nCustomer Lifetime Value = Average Purchase Value \u00d7 Purchase Frequency \u00d7 Customer Lifespan<\/b><\/p>\n
To calculate the average purchase value, divide the total revenue generated from a customer by the number of purchases they have made. The purchase frequency is calculated by dividing the total number of purchases made by the customer within a specific timeframe by the total number of purchasing periods. Finally, the customer lifespan is the estimated time a customer remains engaged with the business.<\/p>\n
Using this formula, let’s consider an example. Suppose a customer spends an average of $100 per purchase, buys from the business four times a year, and remains a customer for ten years. The lifetime value would be calculated as:
\nCustomer Lifetime Value = $100 (average purchase value) \u00d7 4 (purchase frequency) \u00d7 10 (customer lifespan) = $4,000<\/p>\n
Therefore, the lifetime value of this customer would be $4,000.<\/b><\/p>\n