Customer Lifetime Value (CLV), also known as Lifetime Value (LTV) enables marketers and business owners to make better informed decisions about advertising spend and customer retention rates.
What is the Customer Lifetime Value?
CLV is the expected monetary amount that each customer will bring to your business over their lifetime. It’s an estimated, averaged amount that requires detailed research and analysis in order to determine.
The most basic way to determine the value is to take the revenue that you earn from a customer and subtract the amount of money that you spent on acquiring that customer.
Customer Lifetime Value is important to businesses as it allows them to understand how long-term customer relationships affect profit margins. It can help marketers to develop appropriate budgets for targeting new customers. For example, if it takes an average of £50 ad spend to attract a new customer but their lifetime value to the company is expected to be £1,000 then the ad budget can probably be justified.
Calculating CLV and segmenting it by individual campaigns that your business runs will help you to understand which campaigns bring the most money to your business. That might be Google Ads, coupon codes or call-to-actions on your website.
You can also segment CLVs based on the exact product that was purchased in order to determine which products bring in the most profit. In this case, you also need to take into account the amount of profit you make on the item once manufacturing cost and taxes have been taken off of the sale price.
How to track CLV in Google Analytics
CLV can be tracked with popular analytics system Google Analytics. There are two possible methods of tracking it: custom dimensions and custom metrics.
Each method has advantages and disadvantages:
- Custom dimensions are not date-range dependant, unlike custom metrics.
- Custom dimensions can be used with the Data Import tool
- Custom dimensions can’t give you ranges of users segmented by CLV value
- Custom metrics offer segmentation options, e.g. only show users from a particular campaign
You’ll need to analyse the pros and cons of each option in order to decide which will be most appropriate for your particular business.
How reliable is your Customer Lifetime Value?
Your Customer Lifetime Value is only as reliable as your data. If you’re relying on Google Analytics to calculate the value, you’ll only be tracking users back to the date at which the analytics account was created. If your business has been running for five years but you only have two years’ worth of analytics date, that will affect the reliability of your Customer Lifetime Value.
Also, users can opt out of being tracked by Google Analytics which means they won’t be included in your calculations. If your best customer suddenly decides they don’t want to be tracked any more, any future purchases they might make won’t appear in your Analytics account.