Definition: LTV, or Lifetime Value, is a key metric in marketing and business that represents the total revenue a customer is expected to generate for a company during their entire relationship. It helps businesses understand the long-term value of their customer base.
Calculation: LTV is typically calculated by multiplying the average purchase value by the number of purchases expected per customer and the average customer lifespan. This calculation helps in identifying how much a company can spend on acquiring new customers while remaining profitable.
Importance: Understanding LTV enables companies to create effective marketing strategies, allocate resources efficiently, and prioritize customer retention efforts. It provides insights into customer behavior and helps businesses focus on high-value customer segments to maximize profitability.
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