The epic KPI: Live time value
The budget for a startup is vital, particularly in the beginning and even more so if you already have your first loyal customers; the LTV shows the expected value generated per user in our business.
This calculation is a forecast because we cannot know how long a customer will stay with us, what their purchase frequency is or how much they will spend. However, it is a metric that shares with us the actions to take for our next campaign and how to apply our budget.
The LTV is calculated depending on the criteria and the greater accuracy you want to obtain from the KPI; but before we move on the ways of calculation, let's review its parameters:
The simplest attempt involves Averg.Cost of Sales, Expected retention time and Purchase Cycle Time Frequency . The formula would be:
LTV=Avrg.Cost of Sales x Purch Cycle Time Frequency x Exp.Retention Time.
On the other hand, the more elaborate attempt would be according to the following formula:
LTV =AvrgR x Nsales x ExpRT x ProfMperCustomer /AvrgR
The best way to interpret the Live Time Value (LTV) is: if the result obtained is high then the product or service is expensive and the user has only come once; on the other hand, if the LTV is low it makes sense for the user to return to continue consuming your service or product several more times.
Obviously this KPI is very important for a business since the probability of selling to a potential customer is usually between 5% and 20%, while this percentage rises to 60-70% when it comes to selling to a customer who has already bought once. This is why it is important to be clear about this metric as well as the concept of CAC or Cost per Acquisition Client as a KPI, another epic KPI.