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How to Calculate LTV (Life Time Value)

What is LTV?

Hi, I'm Takeo Fujii. In this article, I will be explaining LTV, or Life Time Value, which is an acronym for "Life Time Value.LTV (LTV)This is called "lifetime value," or as it should be.

LTV is a word. If you are an entrepreneur who has just started a business, or if you are a business with unstable sales, you need to put it on top of your mind.

When you understand this LTV, you will be able to stabilize your sales. It will also increase your sales steadily and directly lead to profits.

As I will explain later, LTV can be measured with a simple calculation. It is a very simple formula that even a first grader can calculate. How well is your business doing, or is it dying? You will be asked to calculate it later.

You may have never measured whether your LTV is high or low. If you are in business, please read this article to understand LTV.

LTV is like a fighting force. Think of it as a way to express the level of your business in terms of combat power.

Why is LTV so important?

LTV (Lifetime Value)

First, before we talk about LTV, let's lay the groundwork for our discussion. Where do we want to go? One is to win the game of maximizing LTV.

I said earlier that LTV is the fighting power of a business. As you know, business is war.

What low combat power means in this war is death. You will die.

The bottom line is that if your LTV continues to drop, you will eventually die.

Whether or not you can continue to succeed in business depends on how much effort you can put into improving the LTV value.

Definitely this is one key.

How I Became Aware of LTV

First of all, why am I talking about LTV? After graduating from college, I was a sole proprietor. Back then, I kept working more than I do now.

If you are an individual or a business owner with no employees, you may feel the same way.

Therefore, I was working every day.

I was able to secure a certain amount of income this way, but I wondered what and how the businesses that were having an easier time making ends meet were doing.

I was curious to know if I didn't know how to do that. That's when I learned about the concept of LTV and started to pay attention to it in earnest.

I learned about LTV. Suddenly, our business grew rapidly.
I never had that kind of miracle fever luck like information products.

As a result of being very conscious of LTV and building my business on the premise of LTV, it became a loose and stable business over a period of several months. This is my realization of LTV.

What is LTV (Life Time Value)?

Customer lifetime value is the amount of profit a customer brings to you before he or she dies. This is the total amount.

First, I want you to calculate your current LTV. I'll post the formula in the comments section, so you can try to calculate it once. It is the same as blood pressure.

It is essential to measure the current state of your business so that you can understand it numerically rather than emotionally.

There are multiple ways to calculate LTV. You can choose one depending on the type of business you are in, but I'll post the main LTV calculation formulas that I, other managers, and business partners use in the comments.

Calculate once.

How to calculate LTV [Easy].

LTV = Close Rate x Unit Price

You can now do the calculation. Example: For a 10,000 yen product with a 5% close rate, the LTV is 500 yen.

There are many formulas, but try using this simple one first.

If you are looking for other formulas, please see below.

  • LTV = Sales ÷ Number of customers
  • LTV = Average Customer Price x Average Purchase Frequency x Average Duration

This section explains how to increase TV from here.

How to increase LTV

There are two easy ways to do this.

  • One is to thoroughly design the business.
  • Second, provide quality service.

(1) Thoroughly design the business

For example, if you sell a million yen worth of shitty, expensive, suspicious acupuncture points rather than a hundred yen worth of chewing gum, your sales and profits will increase.

In other words, if you sell more expensive products than fucking cheap products, you will inevitably make more sales, or in this case, remain profitable.

Change the products and prices you sell. Or change the number of products you sell. Increase the total amount of profit by selling multiple back-end products.

Or, as a simple story, introduce a subscription model business with recurring payments, such as an online salon.

At 1,000 yen per month, if you have 10 members, that's 10,000 yen per month, or 120,000 yen per year. As long as the members do not stop, they will continue to be billed permanently, so the LTV will increase.

Another way is to incorporate a system of selling more and larger amounts of products, such as upselling and downselling.

For example, you can promote a product/service with a high unit price, or you can design a fee for an online salon or a recurring payment.

If you do this, you will increase your LTV without quibble. If you do this, your LTV will improve without reason.

This is a way to intentionally include elements that will increase LTV as part of the business design.

(2) Provide high quality service.

I told them that they should sell products with high unit prices.

But if it's a scam business that sells expensive acupuncture points for a million yen and says, "Buy it and you'll be happy," you'll get a lot of complaints.

Or, if you have an online salon for 1980 yen per month that only distributes garbage information, it is obvious that members will cancel their membership after the first month, saying, "This salon is garbage.

Or if you make five or six backends that are just too expensive to want, no one will buy them.

In other words, even if the business design is complete, if the content is crap, LTV will not increase.

Continue to carefully provide a product or service that far exceeds the price you receive. This is important.

If you are selling a product or service with a high unit price, carefully provide a product that makes the customer feel that it is worth it or more.

If you're going to run an online salon, you need to make sure that for 1980 yen a month, the content is at a level that will make people say, "You've come this far. For 1980 yen per month, you need to make the content at a level that will make people say, "Are you crazy?

I wrote about this idea of providing value in a separate article. Please read below as well.

>>Maybe the essence of business is not "providing value.

Why quality service is important to increase LTV

Even if it's a cool business, if the service is bad, the brand will fall apart.

For example, if you send an email inquiry and don't receive a reply within three days, or if you call someone and they suddenly hang up after 30 seconds because they are busy.

I've heard that it's slug slow from order completion to product delivery.

No matter how cool a business is, customers will always hate it.

I want you to take care of the contents of your products and your customer service as if they were demons.

Thoroughly follow these two approaches. If you do this, your LTV will surely increase. It's a simple story that has nothing to do with the original.

Businesses with ground-breaking levels of LTV are often flawed in one or both of these two areas.

Summary: For those who want to increase LTV

LTV improvement

So, let me get this straight.LTV is customer lifetime valueHow much will you pay yourself until you die? How much will you pay yourself until the customer dies? This is an expression that is wrapped up in an offhand way.

What I want you to do after reading this article. Calculate your LTV. If your LTV is low, there are two ways to approach this.

  • Thoroughly design your business.
  • Provide high quality service.

Review these two elements. If you do so, you will definitely improve the LTV in your business. It's not something that will change dramatically just by reviewing them.If you do not review it, the sustainability of your business may be in jeopardy.

In other words, reviewing the LTV of your business is the first step in strategically structuring your business. A business without LTV is a gamble. Let's incorporate LTV into our business.

In web marketing, there is also the word CPA. I'll explain this in another article.

I'll see you soon. Thank you for reading to the end.

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ABOUT ME
Takeo FujiiFounder, CEO at MiyakoWEB
I'm a geek who collects digital marketing resources from around the world. I also write an irregular marketing blog for sole proprietors and entrepreneurs. I'm busy gathering and verifying information, so making money is something I do in my spare time.