Customer Lifetime Value (CLV), also known as CLTV or just simply LTV, is a predictive metric that calculates the amount of net profit one travel company can expect to make from a single customer over the lifetime of their relationship. Unlike transactional metrics that measure the success of a single booking, CLV measures the long-term financial health of the customer relationship to help companies decide how much to spend to acquire and retain a guest.
Calculating CLV is notoriously difficult in travel compared to retail. A customer in a coffee shop makes a purchase every day; a leisure traveler might only visit a resort once every two years.
Many travel bookings are singular events (e.g., a honeymoon). If a hotel spends a lot of money to buy a guest who never comes back, the CLV is low, and the cost of acquisition may be greater than the profit. This is why airlines and hotels love corporate travelers. Their frequency is high and predictable, thus leading to a massive CLV that justifies expensive perks (like free upgrades and lounge access)
The biggest use of CLV is to balance Customer Acquisition Cost (CAC). In travel, CAC is extremely high because of the commission you pay to OTAs (Online Travel Agencies) such as Expedia or Booking.com (often 15–25%). The goal is to increase LTV:CAC Ratio.
There are complex models but the basic formula used in travel marketing is:
CLV = (Average Order Value * Purchase Frequency * Customer Lifespan) — Acquisition Cost
Advanced models used in travel also take into account Churn Rate (the percentage of travelers who stop booking) and Discount Rate (the value of money over time).
Drive direct bookings (eliminate commission costs on repeat visits) and increase ancillary spending. If a guest has booked a room but has also purchased spa treatments, airport transfers, and dinner, their value skyrockets without having to increase the length of stay.
No CLV is related to RFM. RFM (Recency, Frequency, Monetary) looks at past behavior to score a customer. CLV makes use of that data to make future value predictions.
A traveler might fly 20 times a year (High Potential Value) but only fly your airline twice. Your CLV for them is low, but their Potential CLV is high. Marketing’s job is to get a larger Share of Wallet from that particular traveler.
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