How to calculate the LTV index

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To calculate the LTV index, you can use formulas. Let's try to calculate two types of LTV.

Historical LTV
Having a database with information on merchant cash advance email marketing each client of the company, it will not be difficult to calculate the LTV index, especially if there is a proprietary data processing system (for example, CRM). The customer life cycle is calculated by adding up all the amounts that he spent on his purchases, including the most recent ones. That is, LTV = the amount of the first purchase + the amount of the second purchase + the amount of the third purchase, and so on.

Let's give a more specific example.

Let's say a customer bought something in an online store for the first time and paid 2,000 rubles, the next purchase cost him 3,000 rubles, the third - 5,000 rubles. There were three transactions in total.

This means that LTV will be: 2000 + 3000 + 5000 = 10,000 rubles.

But this is a rather superficial calculation. It will be more accurate if you take into account the gross profit when determining LTV. That is, the company will know the amount of net income from each client. To determine it, you need to multiply the sum of all customer orders by the average gross profit (LTV = sum of customer purchases * SVP).

Another way to calculate is to multiply the average check amount by the number of purchases made by one customer (LTV = average check amount × number of purchases).

For example, the average check of a company is 2,000 rubles. The client for whom the calculation is to be made made 10 orders. This means that his LTV is 20,000 rubles. Here, you can also apply the average gross profit indicators, but the final calculation will give a certain average figure.

There is another way to calculate LTV, taking into account the average check amount, the number of orders made by a specific customer during the month, and the total number of months during which the customer made purchases.

LTV = average customer check amount × number of customer orders in 1 month × number of months during which the customer made purchases.

A clear example. Over the course of a year, the company sold goods to 100 customers, each of whom made an average of 2 orders per month. At the same time, the average period of interaction between customers and the store is 5 months, and the average check is 5,000 rubles. Let's do the calculation: 5,000 * 2 * 5 = 50,000. That is, LTV will be 50,000 rubles, if you do not take into account the average gross profit.

More accurate results when calculating LTV are obtained by complicating the formula:

LTV = (amount of first purchase + amount of second purchase + amount of third purchase) – cost of acquisition and retention – cost of products.

In this formula, you need to separately calculate the cost of each product sold and then add up the resulting figures - this way you can find out the total cost of the products that were purchased by customers.