How to Calculate the Lifetime Value of Customer for a Marketing Campaign

How to Calculate the Lifetime Value of Customer for a Marketing Campaign - RxMedia

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Despite our best efforts to romanticize digital marketing, it’s basically just math. Sure, design and user experience play a big role but those things can all be tweaked based on the numbers. That is what makes digital marketing so ✨GLORIOUS✨…everything can be tracked, analyzed, crunched, and calculated to determine exactly whether you are making money….or losing it.

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Our article today is focused on understanding a few basic numbers so that you can start to map out a successful marketing campaign. 💯

We want to work backwards to build your acquisition strategy. To do this, let’s start by identifying a few key metrics.

 

Calculating Average LTV of a Customer 

Our main goal is to calculate the average LTV (lifetime value) of a customer. This is defined by the amount of revenue a customer generates throughout their lifetime. This is important because it will allow us to set a benchmark for what we are willing to spend for each new customer. 

(Yes…I know that a lot of variables can impact LTV such as the type of insurance a customer has, but that is why we focus on the AVERAGE.

Let’s take the following example for a speech pathologist we work with. RxMedia Speech Pathology receives the following payout per customer type:

  1. Insurance = $125
  2. Cash pay = $99
  3. Medicaid = $50 

[(125 + 99 + 50)/3]  = An Average Payout of $91.33 per session

The average customer attends 2 times per week and attends sessions for 18 months. 

Assuming 4 weeks in a month for 18 months, we calculate that a customer will be with RxMedia for 72 weeks or a total of 144 sessions:

(144 sessions) x (avg. payout $91.33) = A Simple Average LTV of $13,151.52 

 

Profit Generated per Customer

Now that we know what the top line LTV is for our customers, it’s important to break down how much profit we are generating per customer. 

For this example, we can keep it simple and just say that $30 per session is net profit. For this, we will calculate:

(144 sessions x avg. net profit $30) = $4,320 

So now, we have a basic idea of what we can spend from a marketing standpoint to attract a new customer. We can safely say that if we attract a customer for under $4,320 then we are at the very least breaking even.

Most likely though that customer will provide word-of-mouth referrals and help generate new business so don’t be afraid to break even when first launching a campaign! 💪

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