How to Find Customer Lifetime Value (LTV)
There are several formulas for calculating the average LTV of a customer to your business. For businesses that do not rely on actual store visits, it’s typical to multiply the average purchase price and the average number of purchases per buyer in the first 2-3 years to find the Lifetime Revenue (LTR). From there, just multiply your average gross margin percentage and you will get your Lifetime Value (LTV).
LTR = (avg. purchase price) x (avg. purchase frequency)
LTV = avg. gross margin x (LTR)
How to Find Acceptable Cost of Customer Acquisition (COCA) Percentage
In order to find an acceptable COCA percentage you must determine how much of your gross margin you are willing to give up in order to acquire a customer. Typically speaking, to accommodate rapid growth people will invest as much as 10% of their gross margin in order to acquire new customers. More conservative businesses will start at around 2%.
How to Find Conversion Rates
Conversion rates are crucial for finding both the effectiveness of marketing efforts and determining the ROI is being met.
Visit to Contact Conversion Rate
To find the conversion rate from visitors to contacts select a period of data (at least 3 months) and divide the number of new contacts you generated by how many site visitors you had.
250 new contacts / 10,000 visitors = 2.5%
The Contact to Lead Conversion Rate
To find the conversion rate from contacts to leads select a period of data (at least 3 months) and divide the number of new leads generated by how many contacts you had. NOTE: For some businesses, especially in e-commerce, virtually all contacts are qualified as leads. If this is your case, set the contact to lead conversion rate to 100%.
100 qualified leads / 250 contacts = 20%
Leads to Customer Conversion Rate
To find the conversion rate from leads to customers select a period of data (at least 3 months) and divide the number of new customers by how many leads you had.
20 new customers / 50 leads = 40%