Customer lifetime value vs. customer acquisition cost
Not all customers are the same, and not all revenue is created equally. Therefore, it is important to find out which customers are most valuable to you. A great framework to find your best customer segment is the PVP index, developed by Allan Dib, author of the 1-Page Marketing Plan.
• Personal fulfillment: How much do you enjoy dealing with this type of customer?
• Value: How much does this market segment value your work?
• Profitability: How profitable is the work you do for this segment?
Once you have found your ideal customers, you can use your marketing budget more effectively and improve your revenue quality.
How to calculate LTV
Customer lifetime value = Average revenue per customer * (1/churn rate)
For example, if your average monthly revenue per customer is €100 and your churn rate is 5%, this means that your customer lifetime value is €2000.
CLV = €100 * (1/0,05)
Be careful not to mix your annual subscriptions with the monthly ones. Otherwise, you might lull yourself into a false sense of security.
How to improve the LTV
• Reward people to upgrade
• Make upgrading to higher plans easy
• Use up-sells and cross-sells
• Create bundles that offer a discount for larger purchases
• Keep customers engaged
• Provide value regularly
• Improve and expand your service