CLTV

The Customer Lifetime Value (CLTV), which translates to "customer value over the entire lifespan" in German, is an important key figure for companies. It indicates how much profit a customer is expected to generate over the entire duration of their business relationship with the company. It's not just about the profit from a single purchase, but about the total value of a customer as long as they remain a customer.

Customer Lifetime Value Formula

CLTV = DUK × AKJ x GKJ - KK

• DUK (Average Revenue per Purchase): How much does a customer spend on average per purchase?
• AKJ (Number of Purchases per Year): How often does a typical customer buy in a year?
• GKJ (Estimated Customer Lifespan in Years): How long is a customer expected to remain loyal?
• KK (Customer Acquisition Cost): How much did it cost to acquire this customer (e.g., marketing costs)?

Example Calculation:

A customer buys on average for 100 EUR per purchase. They buy 4 times a year. It is expected that they will remain a customer for 5 years. The cost to acquire this customer was 50 EUR.

CLTV=100 EUR (Revenue) × 4 (Purchases/Year) × 5 (Years) − 50 EUR (Customer Acquisition)
CLTV=2000 EUR − 50 EUR
CLTV=1950 EUR

This customer is therefore expected to be worth 1950 EUR over the entire business relationship.

Characteristics

• Long-term Perspective: CLTV focuses on the long-term value of a customer, not just short-term sales.
• Decision Basis: It helps companies decide how much they should invest in marketing, customer service, and customer retention.
• Prioritization: Companies can identify and specifically nurture customers with a high CLTV.
• Improved Profitability: Those who know and actively manage CLTV can increase the company's profitability.

Example

A company that sells B2B software solutions wants to optimize its marketing expenses. Instead of blindly investing in new customer acquisition, it analyzes the CLTV of its existing customers using its CRM system (like Microsoft Dynamics 365 Customer Service).

It finds that customers who have once purchased a specific module add an average of 3-4 more modules over the next 5 years. The CLTV of these customers is therefore very high. Based on this, the company decides to invest more in nurturing and servicing these "high-value" customers (e.g., through personal support and cross-selling offers), as this is more profitable than constantly acquiring new customers from scratch.