Customer lifetime value (LTV)
Customer lifetime value (LTV) is the total revenue or margin a customer brings in over the whole time they stay with a company.
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What does Customer lifetime value mean?
The simplest calculation: average purchase value × purchases per year × how many years a customer stays on average. Using margin (revenue minus direct cost) instead of revenue gives a truer picture.
LTV is useful because it shows how much is worth spending to win a new customer, and how much keeping an existing one is worth. Reducing churn raises it directly.
Why does it matter to a small business?
A small business rarely knows what a returning customer is worth to it, so it either spends too much on ads or too little on existing customers. Knowing your customer lifetime value roughly lets you decide whether an ad campaign, a loyalty discount or a regular follow-up call pays off.
What does it look like in practice?
Details
Suppose a coffee roaster in Szeged has an average order of HUF 8,000, a customer orders six times a year and stays for three years on average. Their lifetime value in revenue is 8,000 × 6 × 3 = HUF 144,000. If winning a new buyer costs HUF 20,000 in ads, that still pays back comfortably.
A CRM for small businesses in Hungary
HelloCRM is an online CRM made in Hungary for small and mid-sized businesses there, in Hungarian and English: the core CRM is free for good, with no time limit and no card, and it can be tried without signing up in a demo company full of example data.
Questions
What is Customer lifetime value, in one sentence?
Customer lifetime value (LTV) is the total revenue or margin a customer brings in over the whole time they stay with a company.