Your Customer Lifetime Value or LTV is how much the average customer is worth to your business in the lifetime of their relationship with you. Now to clarify, lifetime isn’t the entire time the customer is alive, but only the span of time they are a customer of yours. One thing that is important to know about LTV is that every business’ LTVs are different unless that business is similar to yours. SocialMediaExaminer.com says, “It’s also a crucial figure that you’ll want to take into account when determining how much you can afford to spend to acquire a customer through paid platforms, including Facebook and Instagram ads and even referral marketing.” Now, let’s get to the numbers, shall we? Just a reminder, Facebook is the parent company over Instagram, so if we only say Facebook, we are still referring to both.
Calculating Your LTV for Facebook and Instagram
There are a lot of tools to help you with figuring out your LTV. Fortunately, Facebook offers a free tool for your use. But, there might be a couple of things that you need to do for it to work on your computer (We will link some resources to help you with this):
Have the Facebook tracking pixel installed on your site
Have purchased events logged on the pixel
Before we start calculating, we want you to know that calculating for all of your audience segments so you can get the most accurate results possible.
Steps to Navigating Facebook Analytics
There is the navigation bar on the left. There will be the option of ‘Activity’.
Once you click on ‘Activity’, it will drop down and towards the bottom, the option of ‘Lifetime Value’. This is where you will want to go. This will open up your LTV Dashboard.
Now, you will see a big chart and line graph pop up on your screen. In the top right hand corner there are options for you to see the LTV data for different segments of your audience, such as: all users or paying customers, over different time periods, or, if you started at a certain time, then you can see how it has impacted your business over time.
You can also see insight into user demographics as well, including: the LTV segments by age, gender, and location.
There is also the option to add a filter to your data if you would like to see the LTV for a segment that Facebook does not offer.
Play around with the feature and see what segments you would like to focus on.
Calculate Your LTV Yourself
The first equation you need to complete is the average purchase value. The equation looks like this:
Total Revenue/Number of Purchases = Average Purchase Value
Next is the Average Purchase Frequency Rate and this is what the equation looks like:
Total Number of Purchases/Number of Unique Customers Who Made a Purchase = Average Purchase Frequency Rate
Now, we take both of the results from the above equations and multiply them together. Here is the equation:
Average Purchase Value x Average Purchase Frequency Rate = Customer Value
Finally, the last step is to figure out your Customer LTV:
Average Customer Value x Customer Lifespan = LTV
Online Calculator Resources
There are also online calculators that you can utilize if you don’t have the skills to do it yourself or they can be a good way to check your work, just in case. Also, note that you still have to do some figuring on your own before you can enter anything into the calculator.
Knowing your Customer Lifetime Value is important for how you communicate with your customers through advertising, social media, and etc. Your customer is one of your main priorities in your business and through calculating their LTV, it improves your business marketing strategies by pinpointing what works for your customers and what doesn’t/ what keeps them coming and what turns them away. Use these equations or calculators to assist you in figuring out your customers lifetime value now. It’s not as hard as you think.