Calculating the Lifetime Value of a Customer

Visual Capitalist |

Courtesy of: Visual Capitalist

What is one customer worth to a business, and what should a business be willing to pay to acquire the said customer?



It all comes down to a concept called “customer lifetime value”, which is used to describe the approximate value of one customer to a business. It is essentially the average amount of money made over the lifespan of an average customer, discounted by future cash flows.

The higher the value, the higher the marketing budget can be to acquire each customer. This is not only a key concept to understand in business, but also for investors that are looking to put money in consumer-oriented companies.

Original graphic by: KISSmetrics

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Emerging Growth

New Age Farm Inc.

New Age Farm Inc is engaged in the development of the agriculture based business in Langley, British Columbia.

Private Markets

Santo Diablo Mezcal

Santo Diablo Mezcal has been created to capitalize on a boom sector of the beverage market currently full of many small unmemorable products by producing one sexy, household, easily recognizable…

WayBetter

The spark hit Jamie when he saw co-workers competing to lose weight. Instead of pizzas and subs, they were eating salads and jogging along the river. Some were sneakily leaving…