We calculate it automatically by multiplying your Average Profit X Average Number of Purchases per client.
If you know your LTV you know how much you can really spend on customer acquisition. More in this article: http://blog.compass.co/how-to-build-a-profitable-business-demystifying-customer-lifetime-value-with-...
Awesome post! Wanted to add my $0.02 on that topic:
Paid marketing is only one part of customer lifetime value. Everything from seo to email to paid marketing to influencers, anything and everything contributes to what your company should be going after, which are its highest lifetime value customers. We keep this in mind for every single brand we work with, and we structure and utilize strategies accordingly.
For example, would you pay $50 to acquire a customer, or would you rather pay $100? Some may say they’d rather pay $50. But if you pay to acquire a customer for $100 and that customer throughout their life ends up repeat purchasing and spending $1,000 on your brand, versus the cost per acquisition, it's much more valuable to acquire that customer for $100. It’s counterintuitive if you're only looking at a low cost per acquisition. You have to keep that in mind in terms of building and executing all of these strategies across all channels.
Anyway, we blogged about this today if you want to learn more: https://bit.ly/2Rngwuc
Hope that helps! See ya
Thanks for sharing Kevin. Unfortunately the Compass blog article is no longer available...
For the merchants currently looking for a way to calculate their Customer Lifetime Value and therefore know how much to spend on Acquisition Costs per channel, that's a feature of our app Polar. Just connect your store and you'll see these nice LTV charts :)
(Disclaimer I am one of the co-founder so feel free to reply to this thread if you have any questions)