How do you calculate the lifetime value of a customer?

LTV equation is as follows:

LCR (Lifetime Customer Revenue) minus LCC (Lifetime Customer Costs).

A simple example would be if a customer buys $1000 worth of product over the lifetime, and cost of sales and service to the customer is $500, hen your LTV is $500.

Follow these steps to calculate the customer lifetime value of your e-commerce store:

1. Divide total annual revenue by the number of purchases per year to get the average purchase value.
2. Divide the total purchases by the number of unique customers to get the average purchase frequency.
3. Calculate the number of years a customer is buying from you to get the customer's lifespan.
4. Subtract average purchase frequency from the average purchase value to get customer value.
5. Multiply customer value with customer lifespan to get your customer's lifetime value or your Shopify's LTV.

You can apply the same method for calculating LTV in excel. Use the tables to insert the required information and the formula features to divide, multiply, and subtract.

Customer Lifetime Value (CLTV or LTV) shows how much a customer spends in a business during the entire business relationship.

Here's a simple e-commerce customer LTV formula for a Shopify store:

Average amount of a purchase * number of customer purchases per year * average length of customer relationship in years = CLTV

Customer Lifetime Value is computed by subtracting the lifetime customer revenue from the lifetime customer cost. For example, if a customer purchases $2000 worth of services or products during your business relationship and the total cost of sales and services is $1000, then the LTV is $1000. This 'worth' can help you make informed decisions about your company's product development, marketing strategies, and customer support.

The customer lifetime value formula is an easy calculation as long as you are up to-date with your financial records. Here is the formula:

Ltv= average purchases per customer - average costs per customer * average lifetime per customer

To get the average purchases. Take total purchases divide by total customers.

To get average costs per customer. Divide total costs used to acquire a customer for example in sales and marketing from total customers.