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This article was originally featured on Social Media Examiner<\/a><\/em><\/p>\n Have you ever wondered how much a single customer is actually worth to your business? Are you looking for accessible tools to help you calculate this?<\/p>\n Businesses and marketers need to keep track of a number of different metrics when running their campaigns, but one that\u2019s sometimes overlooked or can be hard to calculate is the lifetime value of an average customer.<\/p>\n Lifetime value (LTV) is an important metric that you should always be conscious of when you\u2019re tracking your marketing campaigns, assessing your budget, and calculating true ROI.<\/p>\n In this post, we\u2019re going to discuss what the lifetime value metric is, why it\u2019s so important, and how you can measure and calculate it for free using Facebook Analytics.<\/p>\n Your customer lifetime value (LTV) tells you what the average value of a customer is worth to your business in the \u201clifetime\u201d of their relationship with you. Lifetime, in this context, refers to the average amount of time your customers are retained.<\/p>\n Your average customer may retain for six years, for example, and purchase $2,000 during that time.<\/p>\n Different audience niches often have different LTVs. Some users will retain longer, for example, while others may regularly make purchases that have higher-than-average order values.<\/p>\n Your LTV is an essential metric, even if it\u2019s one that you need to track down instead of being readily available on an ads dashboard.<\/p>\n Only once you understand your LTV can you accurately assess the long-term ROI of your campaigns. It\u2019s also a crucial figure that you\u2019ll want to take into account when determining how much you can afford to spend to acquire a customer through paid platforms, including paid social ads and even referral marketing. .<\/p>\n Brands who are on tight profit margins or who typically see a higher customer acquisition cost may be able to spend more to acquire individual customers once they factor LTV into the equation instead of only the profit of a first sale.<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-1.png” title_text=”No 1″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Your LTV may impact how much you\u2019re willing to spend on specific actions when bidding on Facebook Ads.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”146px” custom_margin=”2px|||||” custom_padding=”||||false|false”]<\/p>\n If, for example, you pay $8 per customer on Facebook Ads and your average profit margin per order is $10, that might give you pause. It might not leave a ton of room for revenue or growth at a first glance.\u00a0<\/p>\n However, once you factor LTV in, you may realize that your average customer will purchase 15 times on average, giving you $150 in sales for an $8 customer acquisition cost. That\u2019s a substantially larger ROI and may have you rethinking your ads budget and any bidding minimums that you have in place.\u00a0<\/p>\n What\u2019s considered a \u201cgood\u201d LTV can be subjective, so benchmarks listed online aren\u2019t always the most reliable. Factors like industry, business age, and business model can all result in heavy fluctuations for the baseline LTV metric.<\/p>\n This is why it\u2019s so important to shoot for a target LTV based on your business\u2019s other metrics and existing performance. In order to assess whether or not your current clients have a solid LTV, you first need to know your customer acquisition cost.\u00a0<\/p>\n You can find your customer acquisition cost (CAC) by viewing the data reported for your ad campaigns. You can see the cost per action. For conversions, you can track \u201ccost per unique add to cart,\u201d and \u201ccost per purchase.\u201d\u00a0 Choose the cost for your desired end goal.<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-2.png” title_text=”No 2″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Facebook\u2019s Ads Manager shows you the cost you paid to get users to take certain actions, like adding items to a cart or purchasing.<\/em><\/p>\n [\/et_pb_text][et_pb_video _builder_version=”4.6.4″ _module_preset=”default” custom_padding=”|120px||120px||”][\/et_pb_video][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”99px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n Ideally, want a 3:1 ratio in terms of LTV to your customer acquisition costs. In other words, you want to make at least $3 in gross profit (or have a $3 contribution margin) for every dollar you spend acquiring that customer.<\/p>\n If you\u2019re making under $3 in gross profit per ad spend dollar spent, this can become expensive or unsustainable over time. It may prevent you from scaling. It may be advisable to either spend less on ads in the meantime or find a way to increase LTV.<\/p>\n And if you find that you\u2019re above the 3:1 ratio, it may mean that you want to be investing more on new customer growth. This will help you continue to expand your client base, potentially reach new audiences, and grow your business.<\/p>\n To calculate LTV manually, you\u2019ll need to complete a few basic calculations first.<\/p>\n Here\u2019s what you need to do:<\/p>\n This tells you the average value of each purchase in a set dollar amount. Find this by dividing the total revenue in a set time period by the number of total purchases.<\/p>\n Total revenue in a set time period \/ Number of purchases made in that same period =\u00a0<\/strong>Average purchase value<\/strong><\/p>\n This tells you how often individual customer are purchasing from your business on average. Find it by dividing the number of purchases in a set time by the\u00a0 number of unique customers who made a purchase.<\/p>\n Total number of purchases in a set time\u00a0 \/ The number of unique customers who made a purchase = Average purchase frequency rate<\/strong><\/p>\n Your customer value tells you how much the average customer is worth at any given point. You can find it by multiplying the average purchase value by the average purchase frequency rate.<\/p>\n Average purchase value x Average purchase frequency rate = Customer value<\/strong><\/p>\n This tells you how long, on average, customers will actively purchase from your business. This is simply the mean of all the years that customers purchase from you, which is information you can get from your CRM or sales platform.<\/p>\n Here\u2019s where you get your answer. You can calculate your LTV by multiplying your average customer value and your customer lifespan.<\/p>\n Average customer value x Customer lifespan = LTV<\/strong><\/p>\n Calculating your customer LTV can be an involved process, requiring multiple calculations before you can arrive at a single LTV. You\u2019ll need to conduct these calculations for every different audience segment you have if you want the most accurate results.<\/p>\n While there are plenty of tools that promise to track and calculate LTV, some can be expensive. Fortunately, Facebook offers an LTV tool in their native analytics which is free and accessible to all businesses.<\/p>\n Start by accessing your Analytics here<\/a>. Then, click on \u201cActivity\u201d in the navigation bar in the left side.<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-3.png” title_text=”No 3″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n You can view Facebook\u2019s LTV tool by finding it on your business\u2019s Analytics page.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”73px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n Under the Activity tab, you can find \u201cLifetime Value\u201d all the way at the bottom. Click on it.\u00a0<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-4.png” title_text=”No 4″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n To access your LTV data, click on \u201cActivity\u201d and then on \u201cLifetime Value.\u201d<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”40px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n This will open up your LTV dashboard.\u00a0<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/Featured-Image.png” title_text=”Featured Image” _builder_version=”4.6.4″ _module_preset=”default” min_height=”481.8px”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Facebook\u2019s LTV tool shows you the lifetime value of customers during a set time period or after an initial conversion event.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”99px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n Here, you can view the following:<\/p>\n – Your LTV for all users<\/p>\n – Your LTV for paying users<\/p>\n – Assess LTV over different time segments, including weekly or monthly segments after the first event<\/p>\n – View LTV since the original event you\u2019re tracking, seeing its impact over time<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-6.png” title_text=”No 6″ align=”center” _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n You can view LTV over weekly or monthly periods to get a better idea of the long-term value of your customers and the campaigns that brought them to you.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”99px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n Because of Facebook\u2019s database that allows for insight into user demographics and identity, you can segment LTV by the following demographic parameters:<\/p>\n – Their age<\/p>\n – Their gender<\/p>\n – Their approximate location<\/p>\n Additionally, if you want to segment people by the ads they came to your site from or by the product they purchased, you can use filters to understand how those elements might have an impact on your LTV. This may help you track offers, ads, and even products that result in higher-value clients with higher LTVs.<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-7.png” title_text=”No 7″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Use filters on Facebook\u2019s LTV tool to segment audience data by demographics for more actionable information.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”99px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n In order to use Facebook\u2019s native LTV tool, you must meet the following criteria:<\/p>\n – You need to have the tracking pixel installed on your site<\/p>\n – You must have purchase events logged on the pixel<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-8.png” title_text=”No 8″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n You must have the Facebook tracking pixel installed and purchase events set up in order to use Facebook\u2019s LTV tool.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”99px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n The tool is free, and since most businesses advertising on Facebook already have the tracking pixel installed and purchase events being tracked, this makes it an exceptionally accessible tool overall.\u00a0<\/p>\n Overall, Facebook\u2019s native LTV tool is a great one, especially considering that it\u2019s free, accessible, and exceptionally easy to use.\u00a0<\/p>\n That being said, there is a limitation to keep in mind.<\/p>\n Facebook Analytics data doesn\u2019t always align perfectly with off-platform data that you may get from your CRM or from Google Analytics; many marketers experience this even with conversion tracking cross-platform.\u00a0<\/p>\n This is because it\u2019s based entirely on Facebook\u2019s pixel and doesn\u2019t take in data from other sources. Your CRM, on the other hand, may offer more accurate information overall, though it likely doesn\u2019t come with the convenient LTV calculations ready to view.<\/p>\n Here\u2019s a great example. When we looked at average order value for on Shopify, it gave us $51.48. However, in Facebook Analytics the average order value was $56.18 during the same time period.<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-9.png” title_text=”No 9″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Shopify found an average order value of $51.48.<\/em><\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-10.png” title_text=”No 10″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Facebook said that the same business\u2019s AOV was $56.18 during the same time period.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”99px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n Additionally, with the pending rollout of Apple\u2019s AppTrackingTransparency update<\/a>, it\u2019s possible this data might become more limited in its ability to accurately track a customer\u2019s lifetime value over time, as user tracking information may be significantly impaired for iOS mobile users<\/a>.<\/p>\n We strongly recommend watching your data closely over the next few months to see how your data and campaign optimization are impacted. If there\u2019s a significant impact, Facebook\u2019s LTV tool may be more unreliable than it is now.<\/p>\n Overall, however, this is an exceptional tool that can provide valuable information that businesses can act on right away. Verify the data with your CRM to make sure everything checks out, but you can use this data to look at your campaigns and adjust your budget or bidding strategy as needed.<\/p>\n When used as a directional source of information as opposed to iron-clad, 100% accurate data, it is most valuable.<\/p>\n If you want to take a more manual approach to LTV calculations than simply relying on Facebook\u2019s data, there are several other free tools that can help you calculate your LTV quickly.<\/p>\n Some of these tools, however, may neglect to account for some metrics like purchase frequency or overall lifetime, and they all require more active input than Facebook\u2019s automated tool. You\u2019ll also need to continually assess LTV as your data changes overtime.<\/p>\n Here are a few good options to check out:<\/p>\n – Neatly<\/a> has a free, on-page LTV calculating tool that requires you to add your average order value, purchase frequency, and customer acquisition cost\u00a0 [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-11.png” title_text=”No 11″ _builder_version=”4.6.4″ _module_preset=”default”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Neatly\u2019s free LTV tool is easy to use, asking for basic information that you\u2019re likely to have on hand.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”61px” custom_margin=”-2px|||||” custom_padding=”||||false|false”]<\/p>\n – Enterprise Monkey<\/a> also offers a free tool, which is more extensive but requires an email to send you the reports<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/disruptivedigital.agency\/wp-content\/uploads\/2021\/03\/No-12.png” title_text=”No 12″ _builder_version=”4.6.4″ _module_preset=”default” min_height=”418px”][\/et_pb_image][et_pb_text _builder_version=”4.6.4″ _module_preset=”default”]<\/p>\n Enterprise Monkey\u2019s tool is more sophisticated than Neatly\u2019s, asking for more fields of information.<\/em><\/p>\n [\/et_pb_text][et_pb_text _builder_version=”4.6.4″ text_font=”Roboto|300|||||||” text_text_color=”#333333″ text_font_size=”21px” text_line_height=”32px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” min_height=”37px” custom_margin=”-2px|||||” custom_padding=”||0px||false|false”]<\/p>\nWhat Is LTV?<\/h2>\n
Why LTV Is Important<\/h2>\n
What\u2019s Considered a \u201cGood\u201d LTV?\u00a0<\/h2>\n
How to Calculate LTV<\/h2>\n
1. Calculate the average purchase value<\/h3>\n
2. Calculate the average purchase frequency rate<\/h3>\n
3. Calculate customer value<\/h3>\n
4. Calculate average customer lifespan<\/h3>\n
5. Calculate your average customer lifetime value<\/h3>\n
How to Measure LTV with Facebook Analytics<\/h2>\n
Who Can Use Facebook\u2019s LTV Tool?<\/h2>\n
Are There Limitations to Facebook\u2019s Native LTV Tool?\u00a0<\/h2>\n
Other Free LTV Calculation Tools to Consider<\/h2>\n
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