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How to calculate customer lifetime value and maximize it for your business

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How to calculate customer lifetime value and maximize it for your business



How valuable are your existing customers? It costs less to retain an existing customer than it does to find and attract a new one. Existing customers build value over time, and you can measure that value by tracking a metric called customer lifetime value, or CLV. It’s not just about the purchases your customers make, but about the relationships they build and bring to your business.

Key takeaways

  • Customer lifetime value (CLV) measures the value a customer provides over the length of their relationship
  • To calculate CLV, multiply the average order value by the average number of transactions per period by the expected lifetime of that customer
  • Tracking CLV helps you identify your best customers, improve retention rates, reduce customer acquisition costs, develop more effective sales and marketing strategies, and improve your forecasting

What is customer lifetime value?

Customer lifetime value (often referred to as just lifetime value, or LTV) is a way to measure the value a customer brings to your business over the entire length of your relationship. At its most basic, CLV estimates the total income a customer can expect to generate for as long as that individual remains a customer. It’s a measurement and it’s a projection that attempts to quantify how much retaining a customer is worth to your business.

Know that while you may end up with a similar CLV number for a given customer, how that number is arrived at can differ significantly from customer to customer. Does a given customer generate value based on multiple low-dollar purchases or fewer higher-dollar sales? It’s possible for a customer you see only once a year to have a higher CLV than one you see every week—or vice versa.

How do you calculate customer lifetime value?

To calculate CLV, you need three separate inputs: 

  • Average number of transactions per period
  • Expected length of engagement

This data is easily gathered via Salesforce or other CRM solutions—which can also help you analyze the data and provide further insights. Let’s look at each of these inputs separately. 

Average order value

The first step in calculating CLV is to determine your average order value for a specific customer or customer type—that is, the dollar value of that customer’s average sale. It’s best to look at this value for a 12-month period to even out seasonal fluctuations. Go back too far, however, and inflation effects will tend to underestimate the average value. 

Average number of transactions per period

Next, determine the average number of transactions made by that customer or customer type over an extended period of time. Going back just a year might not be enough. It’s better to gauge customer transactions over a three- to five-year period. 

Expected length of engagement

Finally, you need to determine how long the average customer—not a specific customer—remains a customer. Some products and brands inspire lifelong loyalty, others have more transient customer bases. The expected length of customer engagement is a more objective measurement than the first two and requires you to make some hard choices.

Calculate CLV

With these three metrics in hand, you can now calculate CLV by multiplying the three of them together, like this:

Average transaction size x number of transactions x expected length of engagement = CLV

As an example, take the following numbers:

  • Average transaction size of $100
  • Average number of transactions per year of 4
  • Expected length of engagement of 10 years (customers stay customers for 10 years, on average)

Multiply these three factors together and you get:

$100 x 4 x 10 = $40,000

That is, the lifetime value of this particular customer is $40,000. Put another way, losing this customer could cost you $40,000 in lifetime revenue. 

How can you maximize customer lifetime value in your business?

Focusing on CLV has benefits to any business. In a recent survey, 81% of companies say increasing CLV results in more sales, 68% say it increases customer retention, 56% say it encourages brand loyalty, and 52% say it results in more timely marketing. 

There are several approaches you can take to increase your company’s CLV, including better using your available data, extracting better insights in your customers, and improving your grand reputation. Here are a few more of the most significant ways your business can maximize customer lifetime value.

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Identify and better serve your best customers

Calculating CLV for individual customers or customer segments helps you identify your best customers—those with the highest lifetime value. By segmenting customers in terms of CLV, you can better target customer products and offers to different groups of customers. 

For example, you can send more offers to your best customers because you know they’re more inclined to buy from you. This could mean sending them more frequent email offers, inviting them to special “favorite customer” events, and promoting add-on sales that generate higher profit margins. 

Improve retention rates

Studies have shown that it costs five times more to attract new customers than it does to retain existing ones. This is easily demonstrated by comparing your CLV with the cost of acquiring a new customer. If you have a low CLV and a high customer acquisition cost, you can’t afford to lose old customers. Tracking CLV forces you to pay attention to retaining your existing customers to maximize their lifetime value. 

Optimize customer acquisition and reduce acquisition costs

While we’re on the topic of customer acquisition, analyzing existing high-CLV customers can help you identify potential customers with similar characteristics. If your high-CLV customers tend to live in a particular ZIP code, have a certain level of education, or share certain hobbies, you can target new customers in the same ZIP code, with the same education level, or who also participate in those hobbies. 

By better targeting potential customers, you don’t waste your acquisition spend and end up not only attracting more customers but reducing your customer acquisition costs. You also attract more potential high-CLV customers.

Develop more effective sales and marketing efforts

When you dig deeper into the individual components of CLV, you can start making developing more effective sales and marketing strategies. Personalizing your efforts towards specific customer segments almost always produces better results. 

In a real-world example of this, Tea Forte, a global luxury tea brand, improved CLV by 25% by using Optimizely to introduce personalized campaigns tailored to specific customer types. The better you understand what drives your customers, the more effectively you can market to them.

More accurate forecasting

Tracking CLV helps you make more accurate sales forecasts because you have a better handle on future revenue streams from your customer base. This in turn helps you make better-informed decisions about staffing, inventory and other costs. More detailed forecasting also leads to increased productivity and reduced costs, both of which positively impact your bottom line. 

Let Optimizely help you utilize CLV in your business

When you want to better utilize CLV in your business, turn to the experts at Optimizely. Our Digital Experience Platform not only tracks the data you need to measure CLV, it also helps you provide a more personalized experience for your customers, which increases customer retention and increases CLV. We’ll work with you to turn your customer data into a compelling digital experience across all possible touchpoints. 

Contact Optimizely today to learn how personalizing the customer experience increases CLV.


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18 Events and Conferences for Black Entrepreneurs in 2024

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18 Events and Conferences for Black Entrepreneurs in 2024

Welcome to Breaking the Blueprint — a blog series that dives into the unique business challenges and opportunities of underrepresented business owners and entrepreneurs. Learn how they’ve grown or scaled their businesses, explored entrepreneurial ventures within their companies, or created side hustles, and how their stories can inspire and inform your own success.

It can feel isolating if you’re the only one in the room who looks like you.

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IAB Podcast Upfront highlights rebounding audiences and increased innovation

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IAB podcast upfronts in New York

IAB podcast upfronts in New York
Left to right: Hosts Charlamagne tha God and Jess Hilarious, Will Pearson, President, iHeartPodcasts and Conal Byrne, CEO, iHeartMedia Digital Group in New York. Image: Chris Wood.

Podcasts are bouncing back from last year’s slowdown with digital audio publishers, tech partners and brands innovating to build deep relationships with listeners.

At the IAB Podcast Upfront in New York this week, hit shows and successful brand placements were lauded. In addition to the excitement generated by stars like Jon Stewart and Charlamagne tha God, the numbers gauging the industry also showed promise.

U.S. podcast revenue is expected to grow 12% to reach $2 billion — up from 5% growth last year — according to a new IAB/PwC study. Podcasts are projected to reach $2.6 billion by 2026.

The growth is fueled by engaging content and the ability to measure its impact. Adtech is stepping in to measure, prove return on spend and manage brand safety in gripping, sometimes contentious, environments.

“As audio continues to evolve and gain traction, you can expect to hear new innovations around data, measurement, attribution and, crucially, about the ability to assess podcasting’s contribution to KPIs in comparison to other channels in the media mix,” said IAB CEO David Cohen, in his opening remarks.

Comedy and sports leading the way

Podcasting’s slowed growth in 2023 was indicative of lower ad budgets overall as advertisers braced for economic headwinds, according to Matt Shapo, director, Media Center for IAB, in his keynote. The drought is largely over. Data from media analytics firm Guideline found podcast gross media spend up 21.7% in Q1 2024 over Q1 2023. Monthly U.S. podcast listeners now number 135 million, averaging 8.3 podcast episodes per week, according to Edison Research.

Comedy overtook sports and news to become the top podcast category, according to the new IAB report, “U.S. Podcast Advertising Revenue Study: 2023 Revenue & 2024-2026 Growth Projects.” Comedy podcasts gained nearly 300 new advertisers in Q4 2023.

Sports defended second place among popular genres in the report. Announcements from the stage largely followed these preferences.

Jon Stewart, who recently returned to “The Daily Show” to host Mondays, announced a new podcast, “The Weekly Show with Jon Stewart,” via video message at the Upfront. The podcast will start next month and is part of Paramount Audio’s roster, which has a strong sports lineup thanks to its association with CBS Sports.

Reaching underserved groups and tastes

IHeartMedia toasted its partnership with radio and TV host Charlamagne tha God. Charlamagne’s The Black Effect is the largest podcast network in the U.S. for and by black creators. Comedian Jess Hilarious spoke about becoming the newest co-host of the long-running “The Breakfast Club” earlier this year, and doing it while pregnant.

The company also announced a new partnership with Hello Sunshine, a media company founded by Oscar-winner Reese Witherspoon. One resulting podcast, “The Bright Side,” is hosted by journalists Danielle Robay and Simone Boyce. The inspiration for the show was to tell positive stories as a counterweight to negativity in the culture.

With such a large population listening to podcasts, advertisers can now benefit from reaching specific groups catered to by fine-tuned creators and topics. As the top U.S. audio network, iHeartMedia touted its reach of 276 million broadcast listeners. 

Connecting advertisers with the right audience

Through its acquisition of technology, including audio adtech company Triton Digital in 2021, as well as data partnerships, iHeartMedia claims a targetable audience of 34 million podcast listeners through its podcast network, and a broader audio audience of 226 million for advertisers, using first- and third-party data.

“A more diverse audience is tuning in, creating more opportunities for more genres to reach consumers — from true crime to business to history to science and culture, there is content for everyone,” Cohen said.

The IAB study found that the top individual advertiser categories in 2023 were Arts, Entertainment and Media (14%), Financial Services (13%), CPG (12%) and Retail (11%). The largest segment of advertisers was Other (27%), which means many podcast advertisers have distinct products and services and are looking to connect with similarly personalized content.

Acast, the top global podcast network, founded in Stockholm a decade ago, boasts 125,000 shows and 400 million monthly listeners. The company acquired podcast database Podchaser in 2022 to gain insights on 4.5 million podcasts (at the time) with over 1.7 billion data points.

Measurement and brand safety

Technology is catching up to the sheer volume of content in the digital audio space. Measurement company Adelaide developed its standard unit of attention, the AU, to predict how effective ad placements will be in an “apples to apples” way across channels. This method is used by The Coca-Cola Company, NBA and AB InBev, among other big advertisers.

In a study with National Public Media, which includes NPR radio and popular podcasts like the “Tiny Desk” concert series, Adelaide found that NPR, on average, scored 10% higher than Adelaide’s Podcast AU Benchmarks, correlating to full-funnel outcomes. NPR listeners weren’t just clicking through to advertisers’ sites, they were considering making a purchase.

Advertisers can also get deep insights on ad effectiveness through Wondery’s premium podcasts — the company was acquired by Amazon in 2020. Ads on its podcasts can now be managed through the Amazon DSP, and measurement of purchases resulting from ads will soon be available.

The podcast landscape is growing rapidly, and advertisers are understandably concerned about involving their brands with potentially controversial content. AI company Seekr develops large language models (LLMs) to analyze online content, including the context around what’s being said on a podcast. It offers a civility rating that determines if a podcast mentioning “shootings,” for instance, is speaking responsibly and civilly about the topic. In doing so, Seekr adds a layer of confidence for advertisers who would otherwise pass over an opportunity to reach an engaged audience on a topic that means a lot to them. Seekr recently partnered with ad agency Oxford Road to bring more confidence to clients.

“When we move beyond the top 100 podcasts, it becomes infinitely more challenging for these long tails of podcasts to be discovered and monetized,” said Pat LaCroix, EVP, strategic partnerships at Seekr. “Media has a trust problem. We’re living in a time of content fragmentation, political polarization and misinformation. This is all leading to a complex and challenging environment for brands to navigate, especially in a channel where brand safety tools have been in the infancy stage.”



Dig deeper: 10 top marketing podcasts for 2024

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Foundations of Agency Success: Simplifying Operations for Growth

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Foundations of Agency Success: Simplifying Operations for Growth

Foundations of Agency Success Simplifying Operations for Growth

Why do we read books like Traction, Scaling Up, and the E-Myth and still struggle with implementing systems, defining processes, and training people in our agency?

Those are incredibly comprehensive methodologies. And yet digital agencies still suffer from feast or famine months, inconsistent results and timelines on projects, quality control, revisions, and much more. It’s not because they aren’t excellent at what they do. I

t’s not because there isn’t value in their service. It’s often because they haven’t defined the three most important elements of delivery: the how, the when, and the why

Complicating our operations early on can lead to a ton of failure in implementing them. Business owners overcomplicate their own processes, hesitate to write things down, and then there’s a ton of operational drag in the company.

Couple that with split attention and paper-thin resources and you have yourself an agency that spends most of its time putting out fires, reacting to problems with clients, and generally building a culture of “the Founder/Creative Director/Leader will fix it” mentality. 

Before we chat through how truly simple this can all be, let’s first go back to the beginning. 

When we start our companies, we’re told to hustle. And hustle hard. We’re coached that it takes a ton of effort to create momentum, close deals, hire people, and manage projects. And that is all true. There is a ton of work that goes into getting a business up and running.

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The challenge is that we all adopt this habit of burning the candle at both ends and the middle all for the sake of growing the business. And we bring that habit into the next stage of growth when our business needs… you guessed it… exactly the opposite. 

In Mike Michalowitz’s book, Profit First he opens by insisting the reader understand and accept a fundamental truth: our business is a cash-eating monster. The truth is, our business is also a time-eating monster. And it’s only when we realize that as long as we keep feeding it our time and our resources, it’ll gobble everything up leaving you with nothing in your pocket and a ton of confusion around why you can’t grow.

Truth is, financial problems are easy compared to operational problems. Money is everywhere. You can go get a loan or go create more revenue by providing value easily. What’s harder is taking that money and creating systems that produce profitably. Next level is taking that money, creating profit and time freedom. 

In my bestselling book, The Sabbatical Method, I teach owners how to fundamentally peel back the time they spend in their company, doing everything, and how it can save owners a lot of money, time, and headaches by professionalizing their operations.

The tough part about being a digital agency owner is that you likely started your business because you were great at something. Building websites, creating Search Engine Optimization strategies, or running paid media campaigns. And then you ended up running a company. Those are two very different things. 

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How to Get Out of Your Own Way and Create Some Simple Structure for Your Agency…

  1. Start Working Less 

I know this sounds really brash and counterintuitive, but I’ve seen it work wonders for clients and colleagues alike. I often say you can’t see the label from inside the bottle and I’ve found no truer statement when it comes to things like planning, vision, direction, and operations creation.

Owners who stay in the weeds of their business while trying to build the structure are like hunters in the jungle hacking through the brush with a machete, getting nowhere with really sore arms. Instead, define your work day, create those boundaries of involvement, stop working weekends, nights and jumping over people’s heads to solve problems.

It’ll help you get another vantage point on  your company and your team can build some autonomy in the meantime. 

  1. Master the Art of Knowledge Transfer

There are two ways to impart knowledge on others: apprenticeship and writing something down. Apprenticeship began as a lifelong relationship and often knowledge was only retained by ONE person who would carry on your method.

Writing things down used to be limited  (before the printing press) to whoever held the pages.

We’re fortunate that today, we have many ways of imparting knowledge to our team. And creating this habit early on can save a business from being dependent on any one person who has a bunch of “how” and “when” up in their noggin.

While you’re taking some time to get out of the day-to-day, start writing things down and recording your screen (use a tool like loom.com) while you’re answering questions.

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Deposit those teachings into a company knowledge base, a central location for company resources. Some of the most scaleable and sellable companies I’ve ever worked with had this habit down pat. 

  1. Define Your Processes

Lean in. No fancy tool or software is going to save your company. Every team I’ve ever worked with who came to me with a half-built project management tool suffered immensely from not first defining their process. This isn’t easy to do, but it can be simple.

The thing that hangs up most teams to dry is simply making decisions. If you can decide how you do something, when you do it and why it’s happening that way, you’ve already won. I know exactly what you’re thinking: our process changes all the time, per client, per engagement, etc. That’s fine.

Small businesses should be finding better, more efficient ways to do things all the time. Developing your processes and creating a maintenance effort to keep them accurate and updated is going to be a liferaft in choppy seas. You’ll be able to cling to it when the agency gets busy. 

“I’m so busy, how can I possibly work less and make time for this?”

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You can’t afford not to do this work. Burning the candle at both ends and the middle will catch up eventually and in some form or another. Whether it’s burnout, clients churning out of the company, a team member leaving, some huge, unexpected tax bill.

I’ve heard all the stories and they all suck. It’s easier than ever to start a business and it’s harder than ever to keep one. This work might not be sexy, but it gives us the freedom we craved when we began our companies. 

Start small and simple and watch your company become more predictable and your team more efficient.


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