Figuring out your Customer Life Time Value

Customer Life Time ValueAs a marketer and executive there are various Key Performance Indicators (KPIs) that I tend to follow. One of these KPIs is our customer’s Life Time Value (LTV). The life time value in short is the amount of money an average customer from your chosen segment will spend in the coming years minus the dollars you spent getting that customer to your store. This KPI can help you gauge certain marketing channels, and enable you to distribute resources according to pre-determined customer segments.

But how do you figure out your customer LTV? I thought you’d never ask…

Customer LTV is a function of your Segment Size, Gross Margin, Average Order Value (AOV), Acquisition Cost and the number of orders per customer over a set amount of time.

Here is the function to consider:

LTV = [(AOV * Avg Number of Orders * Gross Margin) / (Segment Size)] – Acquisition Cost

In the example above, we have a segment size of 50,000 customers coming from a certain channel with an acquisition cost of $78.00. If we look at a 1 year span, the average customer orders 1.39 times a year with an average order size of $208.82. With a Gross Margin of 60% the LTV of this segment is $174.16. As you look at a larger time span, the number of orders per customer gets larger; therefore, the life time value grows as well. On a 5 Year span the Life Time Value of the Customer grows to $251.02.

The LTV is a very important KPI, and the time span you choose to determine LTV, depends on your business goals, your industry and the product or services you are selling. There are many ways to “skin this cat”, this is the method I find to be most quick and easy, and I use it consistently to help me determine marketing efforts and helps us segment our Top 20 VIP Customers. How do you use LTV? What time span is right for you and your industry? CEO to Speak at the 2014 eTail West Conference, one of the web’s leading producers of hand painted CEO to Speak at the 2014 eTail West Conferencereproduction oil paintings, today announced its CEO and President David Sasson and Vice President of Development and Marketing Amitai Sasson will speak at the 2014 eTail West Conference in San Antonio, Texas held March 3rd-6th. They join an impressive list of the top minds in retail speaking at the event, they will be sharing their success stories along with leaders from companies including Talbots, American Eagle, Crate and Barrel, Build-A-Bear, Wayfair, OfficeMax,, Travelocity, Williams-Sonoma, The Gap and more.

David and Amitai will participate in the group panel “Increasing Lifetime Value through a Focus on Customer Engagement” on Wednesday, March 5th at 2:25 p.m. CT. They will be sharing the success and strategy behind their recent successful “Top 20” Marketing campaign, which drove residual income to the company this past holiday.

“eTail West is a highly respected industry event that is known for brining first-rate thought leaders, innovators and game changers in the e-commerce and retail space,” said David. “Amitai and I are honored to have this opportunity to add our voices to this dialogue and hope to help brands and retailers find new, unique ways to incorporate emerging technologies in their business plans.”

To learn more about David and Amitai’s speaking engagement at eTail West, visit