What Is Tenant Lifetime Value And How To Calculate It?

Lifetime value is an extremely important factor to consider when assessing and considering investments into customers and prospects. In the property business,  it's the tenants who are your customers and you’ll want them to generate more value than you’ve put in. 

Here, we’ll talk about tenant lifetime value, how to calculate it, and what you should be using it for.

What Is Tenant Lifetime Value & Why Is It Important?

Tenant lifetime value (TLV) refers to the value that a tenant as a customer has to your business over the course of the business relationship. In other words, it’s how much revenue you can expect to make from a tenant during their stay.

This is then measured against predicted customer lifespan. The tenants that the business manages to retain for a long time will, of course, have a higher lifetime value. 

Retention is key to building up a good reputation, solidifying a company brand, generating consistent income, and minimising extra costs like advertising. The happier your tenants are, the more likely it is that you will retain them.

How Is Tenant Lifetime Value Calculated?

Tenant lifetime value is a metric so how do we calculate it? The general calculation for working out the lifetime value of customers applies:

Customer lifetime value (CLV) = (Customer Value * Average Customer Lifespan)

In this calculation, you calculate a customer’s lifetime value by multiplying the customer value (average purchase value multiplied by average purchase frequency rate) by average customer lifespan. 

Using this, you will be able to see which customers (and, in our case, tenants) are of high value to the business. This allows you to measure how much money you need to make in order to have properly profited on a tenant investment.

What To Use Tenant Lifetime Value For

• Tenant relationship management. Not only can you use TLV data to identify top clients and focus on maintaining your relationship with them, but you can also identify top customers or low-level customers from the past to assess what has changed, and what you need to do in order to rectify the situation.
  
  
• Tenant experience, and engagement. The same goes for the experience your tenants have. Focus on all of your tenants, keeping their TLV in mind, and try to make sure they get engaged and feel like they are a valuable part of the building community. You can increase TLV and retention this way.
  
  
• Tenant involvement strategies. Implementing involvement strategies for your tenants is another way of ensuring that they engage. This is a two-way street, and you will also need to involve yourself and reach out to tenants and keep building relationships with them as per the first point.

Final Thoughts

Tenant lifetime value is a very beneficial metric to calculate for a property or a portfolio manager. You can use it as a base for tenant relationship management to prioritise high touchpoint clients and to make better pricing decisions.

Use the calculation given in this blog post to include TLV as a key part of your decision making process going forward.

If your organisation is looking for a tool to involve all tenants in property management for better decision-making on workplace and property strategies, have a look at Falcony | Observe.

We are building the world's first operational involvement platform. Our mission is to make the process of finding, sharing, fixing and learning from issues and observations as easy as thinking about them and as rewarding as being remembered for them.‍

By doing this, we are making work more meaningful for all parties involved.

More information at falcony.io.