Ask yourself, will your customers buy your product every day, every week or just buy once and never return? This metric will show you how much you’ll earn from that individual person’s lifetime as your customer.
Furthermore, this information will give you the ability to determine which of your promotions are valuable, and which ones aren’t.
For instance, a promotion offering the first product for free wouldn’t be profitable if you’re selling a low-priced product at $15.00 and the lifetime value of the average customer is only one purchase in several months or years.
On the other hand, offering the first product for free would be a profitable promotion if you’re selling a low-priced product at $15.00 and the lifetime value of the average customer is a purchase every week or month.
You can use lifetime value and compare it to your customer acquisition cost (CAC) to make sure that you aren’t losing money by gaining more customers.