<\/span><\/h3>\nLet’s break down the components of this formula:<\/p>\n
Average Purchase Value:<\/strong> This refers to the average amount of money a customer spends on each purchase or transaction. To calculate this, you sum up the total revenue generated from all purchases made by a customer over a specific period and divide it by the number of purchases made.<\/p>\nPurchase Frequency:<\/strong> This indicates how often a customer makes a purchase within a specific time frame. It can be calculated by dividing the total number of purchases made by the customer by the length of the time period being considered (e.g., a month or year).<\/p>\nAverage Customer Lifespan:<\/strong> This refers to the average duration of a customer’s relationship with the business. It can be measured in years, months, or any suitable time unit. To calculate this, you need to determine the average length of time a customer remains active and engaged with the business.<\/p>\nOnce you have the values for average purchase value, purchase frequency, and average customer lifespan, you simply multiply them together to find the customer lifetime value.<\/p>\n
For example:<\/strong><\/p>\nIf the average purchase value is $50, the purchase frequency is 5 times per year, and the average customer lifespan is 3 years, then:<\/p>\n
CLTV = $50 x 5 x 3 = $750<\/p>\n
The customer lifetime value in this example is $750.<\/p>\n