Question 1

How do I estimate 'Customer Lifespan'?

Accepted Answer

Estimating lifespan can be tricky. A common method is to calculate the inverse of your customer churn rate. For example, if you lose 20% of your repeat customers each year (a 0.2 churn rate), the average lifespan is 1 / 0.2 = 5 years. If you're new, you may need to start with an educated guess (e.g., 3-5 years) and refine it over time.

Question 2

What is a 'good' Customer Lifetime Value?

Accepted Answer

There's no single answer—it depends entirely on your business. A 'good' CLV is one that is significantly higher than your Customer Acquisition Cost (CAC). A common rule of thumb is to aim for a CLV to CAC ratio of 3:1 or higher, meaning a customer is worth three times what it costs you to acquire them.

Question 3

How can I increase my CLV?

Accepted Answer

You can increase CLV by improving any of its components: 1) Increase Average Profit by upselling or focusing on higher-margin products. 2) Increase Purchase Frequency through email marketing, loyalty programs, and excellent service that encourages rebooking. 3) Increase Customer Lifespan by building strong relationships and providing consistently great experiences.

Question 4

Should I calculate CLV for all customers or just repeat travelers?

Accepted Answer

While you can calculate it for all customers, CLV is most insightful when applied to segments, especially repeat travelers. First-time customers have a churn rate of nearly 100% until they book a second time. Analyzing the value of those who *do* return helps you understand the true value of earning customer loyalty.

Question 5

What is Customer Acquisition Cost (CAC) and how does it relate to CLV?

Accepted Answer

CAC is the total cost of sales and marketing to acquire a new customer. The relationship between CLV and CAC is fundamental to a healthy business model. If your CLV is higher than your CAC, your business is on a sustainable growth path. If your CAC is higher than your CLV, you are losing money on every customer you acquire in the long run.

Customer Lifetime Value (CLV) Calculator for Travel

Results

Understanding Customer Lifetime Value (CLV)

Frequently Asked Questions

Need Help Optimizing Your Hospitality Business?