April 12, 2021 by Michael Diez
If 1 in 10 leads from Google Ads becomes your customer, how much would you pay to get leads from Google Ads?
If for every 100 followers on Facebook, you generate 1 customer, how much would you pay to get another 100 followers?
The key to figuring this out is knowing your Customer Lifetime Value (CLV or CLTV)
If you don’t know your CLV, then you’ll probably think advertising is expensive. And if you do advertise, you’ll usually start with a low budget that gets little to no results because your campaigns are uncompetitive.
As a matter of fact, there is a ratio often referred to as the magic ratio in eCommerce that uses CLV. That ratio is the CLV to CAC ratio.
The reason it is called the magic ratio is that this number can help you figure out if you are spending too much or too little in getting customers, which can help you when you are trying to carve out a chunk of the market.
And one final simple reason you should calculate CLV. Most of your competitors are ignorant about their CLV, so if you know your CLV, you are already ahead of a significant number of competitors.
Calculating the CLV can get complicated. But you can start with An Easy Way to Calculate Customer Lifetime Value.