Client lifetime value, often abbreviated as LTV, is the total economic value that one of your ideal clients represents to your company based on the products and services that they purchased from your company, not just initially but over the lifetime of their relationship with you.
If their company makes repeat purchases, all of those additional purchases get added to average client lifetime value. If your company is primarily based on recurring revenue, like a subscription, a licensed product, or a managed service basis, that's repeated over a certain duration (a year, three years, five years), it is the total value of the revenue that a particular client generates.
Track LTV by Buyer Persona
It's really critical to track LTV on a per buyer persona basis, because you want to make sure that you're focusing your efforts, from a marketing and sales perspective, on bringing in new, good fit clients that are as profitable as possible or as profitable as you think they should be.
The reality is average client lifetime value has massive ramifications for what you can afford to do when it comes to your marketing and sales investments. For example, if a client spends $5 with you on their first purchase and over the lifetime of their purchases with you, that totals up to $50, you don't have a lot of marketing and sales budget to work with.
Staffing a Sales Force
You certainly can't afford an outside salesforce from a $50 average client lifetime value. You can't afford an inside sales force either. Best case scenario, maybe there's a live chat in a call center, but the average client lifetime value really dictates what you can afford to do with traditional marketing.
With digital marketing and staffing up a sales force, conversely, if you sell something to mid-market and enterprise companies and your average sale is $50,000 or $500,000, that opens up a whole new world of possibilities for building an inside sales force and having business development reps that travel to client sites.
The Bottom Line
Average client lifetime value or LTV is an extremely important metric that every small business owner, every Chief Revenue Officer, every head of sales, and every head of marketing should be spending a lot of time trying to measure, optimize, and improve upon over time. It has massive implications into the options that the company has to be able to scale its revenue growth.
Do you track your company’s average client lifetime value or LTV? Share your thoughts in the section for comments below.
To learn more about client lifetime value (LTV), download our eBook "3 Revenue Growth Opportunities Your Business May Be Missing."