What lifetime value is: how much money a customer will spend with you over his/her entire lifetime.
What lifetime value is not: easy to calculate. Theoretically, this is a nice, round, monetary number, but there are many ways to calculate lifetime value, and each company’s method will be different. You’ll need to know, among other things, your churn rate and your retention cost in order to determine lifetime value.
Why we care about lifetime value: Best practices say that you shouldn’t spend more than 15% of your customer’s lifetime value on your acquisition. In order to track this benchmark, you’ll need to know your customer’s lifetime value, in a solid dollar amount.
This post is part of an ongoing Clickipedia series, defining all the terms you need to know for conversion rate optimization. Keep checking back each week to learn more, and don’t forget to download the whole series.