A Customer Lifetime Value (CLV) is a measurement of the value of a customer to your business.
It's not just per purchase...but throughout the entire business and customer relationship.
And a better understanding of CLV will enable you to make better marketing... and business decisions.
As businesses use customer lifetime value to identify their most valuable customer segments.
CLV calculations can be complicated.
Because you have to consider factors like... differences in products, costs, purchase frequencies, and volume.
The longer a customer continues to do business with you... the greater will be your customer's lifetime value.
Now, it might be worth asking...
Why Is CLV Important In Your Business?
When you have a long-term relationship with a customer, the CLV is a great metric to use. For example, streaming service subscriptions or mobile phone service contracts.
Similarly, it's useful for noticing early signs of turnover.
If, for example, customer spending starts dropping after the first year. And as they use the subscription less and less over time.
CLV's benefits also include:
- CLV has a direct impact on your revenue. CLV identifies which customers generate the most revenue for your business. By serving these existing customers with products/services they like, you satisfy them. And for sure, they will continue to spend money at your company. And they will be happy to do business with you
- It lowers customer acquisition costs. Getting new customers can be expensive. In fact, The European Business Review found that acquisition costs are five times higher than retention. Therefore, it is imperative that your business knows your customers very well. And nurture your most valuable customers. Doing this will make your profit go up. And you will get loyal customers. Then your customer lifetime value will increase. Plus, your customer acquisition costs will go down.
- Customers are more loyal and more likely to stick with you. Providing excellent customer support and products can optimize your CLV. This can increase customer loyalty and retention.
- It enables you to identify your ideal customers. When you are aware of your customer's lifetime value... you also know how much they spend with your business over the course of time. Whether the CLV is $10, $100, or $1000, you can use this info so that you can develop a customer acquisition strategy. And this will help target customers who are willing to spend money on your business.
Next, let's look at...
How to Calculate CLV?
This is simple. No need for complex calculations. You just need to keep in mind... the value that a customer provides over the course of their lifetime relationship.
And these steps will guide you:
- Start by finding the average sale value. You might consider evaluating a one or three-month sales period.
- Find out how many transactions occur on average per month. Customer frequency drives customer lifetime value.
- The length of time the average customer stays with your brand: You'll need to determine how long the average customer stays with your brand.
- Measure the CLV (Customer Lifetime Value). Now you have the data. In order to calculate CLV, multiply the 3 numbers together. Please see the formula below:
CLV = Average Transaction Size x Number of Transactions x Retention Period
The inputs mentioned above act as instruments to increase your CLV. Yet, any business move can have unintended consequences that can affect your CLV.
For instance, a price hike might increase your average transaction size.
But on the other hand, it might also make customers shop less frequently. Or they may look elsewhere for lower-cost alternatives.
Having learned how to calculate customer lifetime value, how can you increase it?
There are a few strategies you can try on...
How to Grow Your Customer Lifetime Value?
1. Do Cross-Sell and Upsell
Cross-selling and upselling are great tactics to encourage customers to buy multiple products or services at once... instead of buying one lower-cost item.
In order to grow customer lifetime value, you need to be able to upsell and cross-sell.
Oftentimes, it's easier to upsell to an existing customer than to attract a new one.
For example, you can upsell to your customers a premium subscription of your product. Or cross-sell additional products that fit your customers' needs.
You can also increase customer lifetime value by...
2. Increase Product Usage
Product usage can also drive CLV by having the right licensing and pricing model in place.
This way, the value of increased product usage will surely increase.
You can increase product usage by getting more users, and providing new product features.
In that regard...
3. Consider An Increase in Price
By utilizing a predictive churn model, you can increase prices without having to worry about additional churn.
If you aim for let's say, a 5% price increase, do not spike prices all at once.
And how do you do that?
By segmenting customers according to their churn risk. So you can determine when you should increase the price... or remain at zero percent.
Doing this will improve your pricing model and your customer lifetime value will increase.
Don't worry much about the pricing, think more about...
4. Easy Purchasing Experiences
Creating an easy purchasing experience will help you close more sales.
For example, online businesses measure cart abandonment rate to track how many customers add items to their shopping cart... but do not finish the checkout process.
Modern businesses use strategies to fix this problem. You can be creative in implementing your strategy.
You can add express checkout buttons to expedite the purchase process. This makes it easy for the customers. to shop.
Or you can do upsell and cross-sell to help your customers save money... and increase your AOV 🙂
Or you can send follow-up emails and offer coupon codes to entice customers to return... and complete the purchase.
So incorporate this into your marketing strategy. And think of more creative ideas to streamline the customer shopping experience.
Find out what works best for your customers.
And with that being said...
5. Allow Easy Returns
If a customer isn't satisfied with your product, most probably they will opt to return it.
So make sure you have an easy return and exchange policy. Period.
Because making returns and exchanges difficult could cost you that customer.
The easier the returns process is... the more likely a customer will return to your business and try it out again.
This one's a smart move...
6. Create Loyalty Programs For Customers
Customer loyalty programs can help in increasing customer lifetime value. It rewards returning and frequent customers. And it keeps them engaged. And promotes customer loyalty.
Existing customers can be encouraged to return by offering incentives. This can increase purchase frequency. Also, your customers' time spent engaging with your brand will improve. And they will turn into loyal customers and advocates.
As an example of a customer loyalty program, some airlines offer this via frequent flyer programs. Also, some restaurants practice this. Giving restaurant coupons is a great way to make your customers come back.
Even though it isn't a miracle formula for customer retention... a well-planned and executed loyalty program can be very effective in improving CLV.
Next up...
7. Enhance Customer Onboarding
A company's customer experience begins the moment a potential customer crosses paths with your brand.
But many businesses overlook this part. Don't forget that customers also need care during and after making a purchase.
Your onboarding process should be tailored to the customer's needs.
And it should be as seamless as possible for your customers.
It should be a priority to personalize your services for your customers. And communicate what you can offer them.
This leads me to my next point...
8. Great Customer Experience
Customer experiences are the sum of every interaction your customers have with your brand.
It starts from online store visits to contact center queries... to product purchases to advertising... and social media exposure.
All of these contribute to a great customer experience.
Using a customer experience management program can often improve customer experience in any business.
The goal of this process is to monitor, listen, and engage the customers.
And over time, this leads to a positive customer experience and loyalty to your brand.
You cannot miss this...
9. Facilitate Easy Connections
Consumers won't wait around for your company to get in touch with them or answer their queries.
According to a survey, 88% of customers want emails answered within one hour.
I know it's not always possible.
But you can implement good practices to reduce response times and improve communication.
For example, you can use omnichannel to facilitate customer connection.
Having said that...
10. Provide Customer Service Across All Channels
It is important to recognize that your customers have different preferences for how they want to interact with you.
You should do a little research to determine what channels your particular customer base prefers.
They may prefer to be connected via email or social media...
And this leads me to...
11. Utilize Social Media
Your best bet is to reach your customers where they already hang out.
Facebook, Instagram, Twitter, and TikTok are popular social media platforms to connect with customers.
These platforms can also be used for advertising and for regular customer interaction.
The next step is...
12. Get Customer Feedback
Customer complaints shouldn't go unresolved.
To enhance customer satisfaction, you should not only rely on customer service to resolve issues.
But, you should also continuously solicit customer feedback.
And once you receive good feedback, thank your customer.
Yet, if it's the other way around, do your best to resolve the issue. And improve.
And don't forget to do upgrades.
Regular product upgrades and fixes help improve customer satisfaction.
If you measure feedback at all key touchpoints and understand the customer experience... you'll begin to understand the key drivers of CLV.
Speaking of product upgrades and fixes...
13. It's Wise to Invest In Software & Technology
Your business data can be tracked and centralized with technology. And technology can simplify business processes.
While it is good to use basic tools like email and contact databases to manage information... It's easier to manage all these with packaged software suites.
This will make your life easier... and customer service will be improved. And in no time, your consumers will notice it 🙂
Saving the best for last...
14. Content Tailored To A Specific Audience
You use content marketing to educate or entertain your target customers.
The purpose of this is to build up your brand's trust and loyalty.
There are many ways to create targeted content that can speak to a specific segment of your audience.
This includes blog posts, e-books, videos, podcasts, etc.
Do your research and segmentation to make sure you know your audience.
And you'll be able to deliver the right message to the right customer at the right time.
So, that's it for now...
This highlights the importance of improving customer lifetime value to get ahead of the game. Use these strategies to...
To Grow Your Customer Lifetime Value and Stand Out in Your Business...
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