What is Customer Lifetime value? Customer lifetime value (CLV) is the projected revenue that a customer will generate during the time they are a client of yours:
CLV = Average revenue per job X # of jobs per customer
Let’s look at the two components:
Average revenue per job: take the total revenue last month (ex $20,000) and divide it by number of customers (40) to get your average revenue per job. $20,000/40 = $500 per job
# of jobs per customer: Since moving is infrequent, this is typically one job per customer. CLV is calculated over a 1 – 2 year period. Being optimistic you can assume 1 in 4 clients move more than once with you in a 1 year timeframe, making # of jobs per customer 1.25.
Now take Average revenue per job and multiply it by the number of jobs to get customer lifetime value:
Conservative: $500 * 1 = $500 CLV
Optimistic: $500 * 1.25 = $625 CLV
In this example Customer lifetime value would be $500. Remember your customer acquisition cost (CAC) from last time? Now jot that down and look at customer lifetime value – is it higher?
CLV > CAC
$500 > $100
The bigger the gap between these numbers, the better. Increasing revenue per job and number of jobs per client while reducing costs of finding customers help you achieve greater profitability.
Tips for these coming soon…