Complications with using Average Lifetime Value calculations

Stores use their Average Lifetime Value to figure out how much each customer is "worth" to them.

Ignoring all the variety of ways it's calculated, it can still lead you a bit astray.

The problem with Lifetime Value calculations is that they require a customer's full lifetime to be accurate. If the customer is still active, then you're under-calculating the Lifetime Value. If your store has done major pivots and now sells at different price points, the value could be over/under the present behavior.

Averaging the Lifetime Values across your whole customer base can smooth over some of the problems. e.g. one customer who just started their lifetime is balanced by another who just defected. It'll still fluctuate over-time as the real customer behavior emerges, but you can usually use the values to help make better decisions.

You definitely want to keep an eye on Average Lifetime Value, especially after major changes or events. Weekly is great but at least check on it once per month. By the time you see it drop (or grow), you'll want to move fast and figure out why. For an instant view of your Average Lifetime Value, Repeat Customer Insights includes it in the Store Analysis.

Eric Davis

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Topics: Customer lifetime value

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