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What Is 'Lifetime Value'?

Lifetime Value is the total value of a customer's business over the lifetime of their relationship with your company. The more they purchase from you, and the longer they stay with you, the better the value. The higher the Lifetime Value, the more you can do to earn a new customer and keep them happy.

Josh Kaufman Explains 'Lifetime Value'

Imagine operating a lemonade stand on the sidewalk of a popular tourist destination. Each cup of lemonade costs $1. You may be busy serving customers, but each customer you serve is just passing by — you’ll probably never see them again.

Contrast that with the Insurance business. Assume the average customer pays a premium of $200 per month for car insurance — that’s $2,400 in premiums per year. If the average customer remains with the same insurance agency for 10 years, each client is worth $24,000 in premium payments over the lifetime of their relationship with the company. Big difference.

Lifetime Value is the total value of a customer's business over the lifetime of their relationship with your company. The more a customer purchases from you and the longer they stay with you, the more valuable that customer is to your business.

One of the reasons Subscriptions are so profitable is that they naturally maximize Lifetime Value. Instead of making a single, small sale to a customer, subscription businesses focus on providing value — and collecting revenue — for as long as possible. The longer a customer remains subscribed and the higher the price they pay, the higher the Lifetime Value of each customer.

The higher your average customer’s Lifetime Value, the better your business. By understanding how much your average customer purchases and how long they tend to buy from you, you can place a tangible value on each new customer, which helps you make good decisions. Losing a single lemonade stand customer isn’t a huge deal — losing an insurance client is.

All told, it’s much better to operate in markets where customers have a high lifetime value. The higher the lifetime value of your customer, the more you can do to keep them happy, and the more you can focus on serving customers well.

Maintain a long-term relationship with profitable customers, and you win.

Questions About 'Lifetime Value'

• What is the average lifetime value of a new customer for your business? Is it high or low?
• What could you do to increase the lifetime value?

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"The purpose of a customer isn't to get a sale. The purpose of a sale is to get a customer."

Bill Glazer, advertising expert

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https://personalmba.com/lifetime-value/

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