A Critical Business Performance Metric You Might Be Missing

by Kate Neri | May 18, 2021

In Jason’s most recent blog post, he shares the idea that “what gets measured, gets better” and dives into an important business metric, churn rate.

Today I want to talk about another critical metric that provides a picture of your business long-term and when improved, can play a huge role in the growth and success of your business.

Lifetime Value

Lifetime Value (LTV) can be calculated several different ways but in its simplest form, it is the value a customer/client brings into your business over the course of their entire relationship with your organization, from their first encounter to their last transaction. 

The metric can have varying levels of sophistication depending on your business and how customers buy from you but regardless of which method you use to calculate LTV for your business you should be measuring and aiming to improve it. 

Why should you measure LTV?

LTV can be used as a benchmark to determine how customers are spending, what their frequency of spend is, and how long the average customer relationship is. Once a benchmark has been established, you then can focus efforts and resources on growing and improving that number.

In addition to setting a benchmark, measuring LTV helps you:

  • Focus efforts: Once you understand who your most profitable customers are, you can reposition your sales and marketing efforts to target similar customers in market.
  • Enhance client relationships: When you have your eye on LTV, you are able to quickly identify areas of growth and improvement for individual client relationships.
  • Improve quality: Low LTV usually means your customer is either unaware of other products/services or those products/services aren’t working as you anticipated. Both are opportunities to improve!
  • Better budget: Knowing how much you profit on average per customer allows you to determine how much you can spend to acquire a new customer. 

Lifetime Value is an important metric and key for long-term growth. By monitoring this measurement you can identify important areas of growth and make smarter business decisions. 

How are you measuring your LTV? Reach out on LinkedIn, I’d love to hear from you!

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 by Kate Neri

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