What Is Customer Lifetime Value? Definition And Meaning

Customer lifetime value is a metric system that helps you calculate the expected revenue from a customer’s account. It considers a customer’s revenue potential and compares it to the company’s predicted user lifespan. This article examines customer lifetime value and its importance to the casino market.

What is Customer Lifetime Value?

Customer lifetime value (CLTV) is a metric that represents the total net profit a platform could potentially generate from a user. This clv definition calculates the possible revenue while the user uses the platform and considers different factors such as the user’s initial purchase, repeat purchases, and average business time with the company.

CLTV by Niche

Understanding Customer Lifetime Value (CLTV) is essential in various sectors. It reflects the total net profit from a customer throughout their engagement with a platform. This includes initial and repeat purchases, as well as their overall relationship duration with the business. Different niches apply CLTV to foster growth and develop unique strategies to increase earnings.

Gambling

In terms of gambling, CLTV has transformed the operational dynamics. For traditional land-based casinos like Caesars Entertainment, which reported a net income of US$786.0m  in 2023, to the burgeoning online gambling sector, the metric offers a detailed earnings estimate per user. Online platforms, for example, might calculate a user’s CLTV based on regular bets placed over time, leading to substantial predicted revenues. A typical scenario might involve a gambler wagering $100 per visit weekly, over three years, culminating in a CLTV of $15,600.

Furthermore, leaders in online gambling aim to optimize their Cost of Acquiring a Customer (CAC) to Lifetime Value (LTV) ratios, with ambitions to reach and surpass a 1:1 ratio. The strategic enhancements in product and marketing will keep the company’s competitive edge in a highly contested market. Here are thoughts from Illia Korchahin, founder of GeekGamble.com:

“Gambling is a highly competitive market, leading to significant increases in CAC. Not only that but these metrics are heavily influenced by the timeline of the product – initially, all startups have low LTV and high CAC. Our objective is to get a 1:1 ratio of LTV to CAC by the end of the year. After this milestone, Geek Gamble will continue to improve the product and optimize strategies and processes to make this ratio at least 3. Our past projects have demonstrated that the LTV/CAC ratio in the gambling industry can reach 5 or higher.”

E-commerce Fashion

In this case, Bonobos represents an innovative case in e-commerce fashion. The company utilizes guide shops to let customers try outfits before making online purchases. This approach helped make online shopping more convenient and increased the company’s sales and CLTV by 20%. By adapting CLTV to their model, Bonobos and similar brands can better understand the value provided to each customer. So, their marketing strategy will become more targeted and effective.

Entertainment

With Netflix at the forefront, the entertainment industry showcases the impact of CLTV through its strategic initiatives to reduce churn rates and boost viewer retention. Adding a web streaming feature has addressed viewers’ desire for immediate content access. This led to reducing the churn rate by 4% and achieving an impressive lifetime value of $291.25 per user. Moreover, such an adaptation highlights the significance of CLTV in retaining a profitable user base and tailoring services to meet consumer demands effectively.

Footwear

CROCS has a history of a data-driven, customer-centric approach to consumer marketing. The company’s marketing team optimized its promotions targeted at customers who are predicted to churn and also expanded programs to provide a “no-discount” experience across the site, email, and display for consumers with the lowest price sensitivity. These changes helped the company gain 10X more revenue. 

Music Training

HEAR AND PLAY MUSIC is a provider of music lesson products and it uses automated lead nurturing and scoring to convert prospects into customers and repeat customers. By using these automated messages, the company has experienced a 416% increase in customer life value, 18.4% growth in lead-to-purchase time, and a 67% increase in click-through rate for the best prospects. 

Automobiles

U.S. Autoparts is a company that understands the competitive advantage of customer loyalty. It harnessed this by introducing its loyalty program known as APW Rewards. The company also began leveraging its other capabilities such as personalized post-purchase enrollment offers and triggered email campaigns based on a customer’s repurchase history. 

This helped it maximize customer lifetime value by increasing its spend member by 20%, its repurchase rate by 14%, and its enrollment rate by 45% after improving its loyalty program.

Customer Lifetime Value Models

There are two models used by businesses to calculate CLTV:

  • Predictive CLTV

This model predicts the behavior of existing and new consumers using machine learning or regression. It helps you identify your most valuable users and how you can improve consumer retention. 

  • Historical CLTV

This model uses previous data to predict the user’s potential. In this case, you don’t consider whether the existing consumer will keep using your platform. 

Using the historical model, the average wager potential is used to determine the customer’s potential. It’s also useful if most consumers only use your business for a certain period. However, this model is limited as most consumer journeys are not identical.

Furthermore, active customers could become inactive and ruin your data. Alternatively, inactive customers might start buying from you again. This could make you overlook them as “already inactive” and make your findings inaccurate. 

 How To Calculate Customer Lifetime Value 

The customer lifetime value formula works this way: Customer Lifetime Value = (Customer Value x Average Customer Lifespan). To find your CLTV, calculate the average purchase value x the average number of transactions. After calculating the average consumer lifespan, you can multiply it by the consumer value. This will give you an accurate CLTV.

What Is the Relationship Between CLTV and Customer Acquisition Cost (CAC)?

The CLTV is the amount of money a business can make from a consumer. However, the customer acquisition cost is converting prospects or convincing them to become consumers. 

Concerning both metrics, it’s ideal they have an inverse relationship in your business. This is one where the CLTV is the higher of the two numbers. It means you stand to make more profit the less it costs to acquire new customers. You should establish the two numbers, create a business baseline, and start pushing them apart to achieve this. 

The reality is both metrics are vital to the success of your platform. This is because they tell different yet connected stories about your business losing money and how you can improve. CLTV stands as the most coveted metric as it helps you understand your bottom line profit. However, you can’t fully grasp it unless you know how much it costs to acquire a user. That’s why combining these metrics is important to create a holistic understanding of your platform’s performance.

What Factors Influence Customer Lifetime Value?

The CLTV can be impacted by different factors, including: 

  •   Purchase frequency: This is how frequently a user’s purchases affect their CLTV. Higher purchase frequency results in increased revenue over time.
  •     Customer retention: The longer users stay engaged with the business, the higher their CLTV. This means effective user retention strategies reduce churn and extend user retention strategies.
  •     Customer loyalty: Loyal users have a higher chance of making repeat purchases. They can also refer to other players and boost their CLTV.
  •     Average Order Value (AOV): consumers who make larger payments contribute more to tier CLTV. This can also be encouraged through upselling and cross-selling strategies.
  •     Consumer engagement: consumers who actively engage with the company platform by participating in customer loyalty programs have a higher CLTV.
  •     Cross-sell and upsell rate: This is the success rate of additional offers and services you give consumers.
  •     Referral rate: The rate of referrals made by the bettor on the site
  •     Promotional value: The value received by the consumer through promotional activities.

Importance of CLTV in Marketing Strategy

The value of understanding your CLTV for your platform’s marketing and sales strategy: 

Can Provide Important Insights About Your Customer Experience

Your customer life value can help you understand consumer’s needs and demands. This helps you understand what improvements to make to your platform to reduce your bounce rate. 

Pinpoint Bottlenecks in The Bettor’s Journey

Customer life value metrics can help you determine how your sales and customer support reps communicate with each segment of the bettor’s playing experience. 

For example, some consumers with high CLTVs get more touchpoints and personalized content than their lower-value counterparts. In such situations, you can personalize the content for other platform segments. This will boost touch points to improve customer experience and loyalty rates.

Improve Your Offerings

Once you find your high-value users and learn their details, you can also understand why they like your brand. It also becomes easier to learn their pain points or use the feedback they’ve already given.

Then, you can use this information to create and personalize content for your user segment. This will improve your services and refine your customer platform to address customer needs better. After this, you will have a better platform that differentiates your brand from the competition. Your company site also gets access to a larger and more loyal customer base.

Help Plan For Your Business Future

Your business platform is guaranteed to perform better if you have more insights about your customer relationships. Learning who your best customers are and why they trust you will provide key valuable insights. These include customer behavior, changing purchasing trends, and marketing pressure points. 

This knowledge will help you plan your business future with proper budget planning. You can also make credible company revenue forecasts to make your business more profitable.

Conclusion

Customer lifetime value is a metric that can’t be overlooked if you want to generate income. It helps you understand what customers like about your platform and what you can improve. Beyond that, you can also learn new ways to enrich your customer’s experience and get referrals.

That said, the CLTV doesn’t exist in a vacuum. You need to review your business operations and determine what changes can be made. Customer service reps can also request feedback on social media and suggestions on improving your offers. With this, you can satisfy customer demands and generate better revenue for your platform.


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