When was the last time you calculated the return on investment (ROI) of one of your lead generation campaigns? If you can’t remember when, you’re not alone. Too many marketers put off calculating this metric – not because they see it as unimportant, but because they find the process rather challenging.

At the end of the day, ROI is one of the best ways to measure the impact of your lead generation campaigns. It’s simple: if your campaign generates a positive ROI (e.g., if you spend $1000 on a campaign and generate $5000 in revenue), then that campaign is a success.

While calculating the ROI of your marketing campaign can be complex, it’s doable once you get a grasp of the key formula that determines the ROI of all your marketing efforts: your Customer Lifetime Value, or CLV as it’s more commonly known.

Understanding Customer Lifetime Value

At its most fundamental, the CLV is the amount of revenue you would generate from an average customer during the time he or she remains a customer with you.

Knowing your CLV is key to your lead generation campaigns because: a) It helps you understand how much revenue you’ll generate each time you acquire a customer, and b) It helps you understand how much money you should invest to acquire this customer.

Now that you understand why it’s important you know your CLV, let’s look at a simple method to calculate it.

Say you’re a cable company and you generate $100 from each customer each month and, on average, customers stay with you for four years. You’ll calculate the CLV of your customers by taking the monthly revenue per customer then multiplying it by 48 months (4 years).

Here’s what that math looks like: $100/month x 48 months = a CLV of $4,800.

The formula above is just a basic way of calculating the CLV. That said, it’s good enough to serve as the starting point to calculate the ROI of your marketing efforts. More sophisticated CLV formulas factor in things such as the labor cost associated with serving the customer and the time value of money during the four year time period.