In this tutorial, you will learn how to calculate the LTV (Customer Lifetime Value) in Google Sheets.
How To Calculate LTV (Customer Lifetime Value) in Google Sheets
If you are running a digital marketing campaign, you may be wondering how to measure its success in terms of customer loyalty and engagement. One of the key metrics to consider is the customer lifetime value (LTV).
LTV is a measure that predicts the total amount a customer is likely to spend over the course of their relationship with a company. We can find the customer lifetime value by calculating how much a customer is likely to spend in a given timespan, such as a month or year. Afterward, we multiply this value by the average customer lifetime.
For example, if your business has an annual revenue of $10,000 from a total of 1000 different purchases, we can say that each order is worth an average of $10. If your business had a total of 500 unique customers, then we can further deduce that each customer is likely to purchase about twice in a year.
Thus, a single customer is said to have a customer value of $20 after making two purchases in a year. If the average customer lifespan is 5 years, then the customer lifetime value would be $20 x 5 or $100 in total.
Knowing the LTV of your customers can help understand how much value they are bringing to your business and will shape your future marketing efforts.
In this guide, we will show you how to calculate your customer LTV in Google Sheets.
How To Determine Customer Lifetime Value in Google Sheets
Here’s how to find the customer lifetime value in Google Sheets
Step 1
First, the user must identify the timespan to use for computing the customer value. In this instance, we will focus on the value of a customer within a single year. Two metrics we need to know is the total revenue of the business within that timespan as well as the total number of orders.
Step 2
From these two metrics we can compute the average purchase value.
In our example above, we discover that each purchase, on average, costs $86.57.
Step 3
Next, we must count the total number of unique customers who have made a purchase during the timespan.
Step 4
The average purchase frequency refers to the average amount of purchases a customer will make within a specific time period.
In our example, we discover that customers typically purchase at least twice in a year.
Step 5
We can multiply the average purchase value and average purchase frequency to get the customer value within the time period.
Step 6
Next, we must identify the average customer lifespan using historical data.
In our sample scenario, our historical data shows that they last at least three years as a customer.
Step 7
We can now multiply the customer value by the average customer lifespan to get the overall lifetime value of that customer.
In our example, we discover that each customer is likely to contribute $510.67 throughout their relationship with our business.
Summary
This guide should be everything you need to calculate a customer’s LTV (Lifetime Value) in Google Sheets.
Make a copy of this example spreadsheet to test it out yourself!