Lifetime Value (or Customer Lifetime Value) is an important metric that gives you an understanding of how valuable your customers are to your e-commerce business over a period of time.

With TrueProfit, you can now access this metric to measure your business growth and decide where to invest your money in next.

What is Lifetime Value of a Customer

Lifetime Value (LTV) is the average revenue that a customer will generate throughout their lifetime as a paying customer.

For example, if a shopper keeps buying products or services from your business for 6 months and spends $20 per month, his or her customer lifetime value is $120.

The higher the LTV number is, the more profitable your business has become.

Why LTV matters?

Fundamentally, knowing LTV allows you to see the average revenue a customer brings you, then you can compare it with the costs you pay to acquire that customer (CAC).

It’s less costly to retain a customer than to gain a new one. So understanding your customer's value may be a good start before you spend money in your next sales and marketing efforts.

Many store owners who’ve been running Facebook Ad campaigns are more likely to see the importance of LTV metric. Unless they have an idea of LTV, there's a chance they misinterpret the Cost per Purchase (CPP) given by Facebook.

For example, if you have an $50-worth order with a 40% gross profit margin, then your marketing team will accept a CPP of less than $20. However, if customers repurchase to eventually generate a $80 LTV while the gross profit margin remains at 40%, then the acceptable CPP could be around $25. Without having LTV in the picture, that $25 CPP may look alarmingly high to your marketers, while in fact it does not.

Additionally, LTV can potentially give you some insight into how your repeating customers behave. You would know how often they purchase from your store or what products bring more long-term values, for instance *.

* These are the upcoming features in TrueProfit.

Ultimately, understanding LTV can help you win your customers' loyalty (by offering them what they deserve). In turn, you will drive your business more profitable.

On the contrary, failure in taking LTV into account may cause you to waste money in the wrong place and leave your business behind or worse, in jeopardy.

What to see in the Lifetime Value Feature?

In TrueProfit, we group customers into cohorts represented by the months in which they made their first purchases.

The Lifetime Value feature shows you:

Total Customer

Repurchase Rate

Lifetime Value (LTV)

Cost of Customer Acquisition (CAC)

LTV:CAC Ratio

Total Revenue (+)

(+) This is an upcoming viewable metric in TrueProfit.



You can filter by country, month range (the months in which cohorts of customers purchase their first orders).

In particular, the country filter allows you to see from which country your customers are generating more value (see photo below). The greater LTV:CAC ratio is, the more revenue is brought into. Recognizing this may give you an idea of where to execute your next business plan.

Country Filter

Information is shown in the tables and charts as well.



How to read this chart?

Rows: Customers are grouped into cohorts by first-order month. The number of customers is also shown. Currently you can only see a maximum of 6 cohorts at a time.

Columns: The second column (1st month) is the first-order month while the last one will be the current month. Depending on the starting cohorts, the time span will be short or long.

Value: Average order value made by these cohorts in the following months since their first orders. The higher the value is, the lighter the blue appears to be. Orange texts represent current values.

For example: A cohort of 61 customers made their first orders in Sep 2020 (with an average order of $36.30 per customer) has generated on average $42.12 per customer over the 4 months.

Read a more detailed explanation of all related metrics here.
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