ANSWER | PHIND INSTANT MODEL

Determining the lifetime value (LTV) of your customers is crucial for creating value-based lookalike audiences on platforms like Facebook. This process involves analyzing your current customers’ purchasing histories and other relevant data to estimate how much revenue you can expect from each customer over the course of their relationship with your business. Here’s a step-by-step guide on how to determine your customers’ LTV and utilize this information to create value-based lookalike audiences.

1. Understand What Lifetime Value Is

Lifetime Value (LTV) represents the total net profit a company expects to earn from a customer account. It considers the revenue generated from a customer throughout their relationship with the company, minus the costs associated with acquiring and serving that customer. High LTV customers are typically more valuable to your business due to their higher spending habits or loyalty.

2. Calculate Your Customers’ Lifetime Value

To calculate LTV, you need to consider several factors:

Average Purchase Value (APV): The average amount spent per transaction by your customers.

Customer Acquisition Cost (CAC): The cost incurred to acquire a new customer.

Customer Retention Rate (CRR): The percentage of customers who continue doing business with you over a certain period.

Profit Margin: The net profit margin after deducting all costs associated with generating revenue.

Using these components, the basic formula for calculating LTV is:

3. Analyze Your Customer Data

To calculate LTV, you’ll need access to your customer data, which can often be obtained from your CRM (Customer Relationship Management) system or analytics software. Look for patterns in purchase behavior, frequency of purchases, and customer demographics that correlate with higher spending or loyalty.

4. Use Analytics Software

Consider leveraging analytics solutions like Glew.io, which can automatically calculate LTV for you, providing insights into key customer metrics such as LTV by various segments, including VIP Customers, Active Customers, and customers by Average Order Value (AOV). This can save you time and ensure accuracy in your calculations.

5. Upload LTV Data to Facebook

Once you have calculated the LTV for each customer, you can upload this data to Facebook along with your customer list. Facebook will then use this information to create a Value-Based Custom Audience. From there, you can generate a Value-Based Lookalike Audience, which targets users who are similar to your high-value customers based on their LTV.

6. Run Targeted Campaigns

With your Value-Based Lookalike Audience in place, you can run targeted campaigns aimed at acquiring new customers who exhibit the same high-value behaviors as your existing loyal customers. This approach can reduce your cost per acquisition and increase the profitability of your campaigns.

By determining the lifetime value of your customers and applying this knowledge to create value-based lookalike audiences, you can more effectively target your marketing efforts, reaching potential customers who are more likely to be valuable to your business in the long term.