What Is Customer Lifetime Value And Why Does It Matter To Business Owners

Published: 2021-05-29
Views: 438
Author: Editorial
Published in: Sales & Marketing

Customer lifetime value (CLV) refers to a customer's total value to a company over the course of their relationship.

It's an important metric because acquiring new customers is costlier than keeping old ones, so increasing the value of your existing customers is a great way to grow your business.

The knowledge of CLV can help businesses create strategies for getting new customers and keeping existing ones while maintaining profit margins.

It's critical to extend a customer's lifetime (i.e., retention) to attain long-term growth. After all, the importance of a satisfied customer cannot be overstated. Customers who are loyal

• Stay a little longer.
• Purchase more
• Make a recommendation for your business
• Are easier to serve and are less price-sensitive
• Provide constructive criticism.

Benefits of Customers Lifetime Value

The significance of The customer lifetime value (CLV) includes:

Determines your spending on customer acquisition

Your customer acquisition costs may be higher than the profit from the first purchase, but are you still making money from that customer over time? The answer can be found by calculating a customer's lifetime value to your business.

Allows segmentation of customers

You can better understand the various personas among your customers by using CLV, which is the first step toward effective targeting or personalization.

You can narrow your focus by sending a special offer or gift to your "VIP" customers to ensure their retention, or by using look-alike modeling to acquire new customers with similar backgrounds. This segmentation enables an experience that is personalized, which many customers have come to expect.

For long-term company-wide growth

The e-commerce market is highly competitive, and the price isn't the only factor that influences a customer's decision. Customer lifetime value (CLV) is a customer-oriented metric that can be used to increase profits from new customers, keep valuable customers, and improve the overall customer experience.

CLV is about a lot more than just increasing profits. It's all about maximizing customer profitability for the longest time possible; in other words, keeping customers for longer and lowering overall churn.

Why should you care about Customer Lifetime Value?

Customer lifetime value (CLV) is one of the most crucial metrics for any business to understand. It goes beyond estimating customers' revenue to assisting businesses in calculating the profit to be earned over the course of a customer's lifetime and determining whether strategies or prices need to be changed.

You should be concerned because no business can last long if it is consistently losing money. To entice new subscribers to try out your service, offer a limited-time introductory offer that expires after a month or year.

During this brief period, you can expect to make a negative CLV, with the expectation that they will turn a profit after the trial period.

You may, on the other hand, be overspending on services and loyalty programs and need to reconsider your strategy. Keeping customers is important, but staying profitable is how you grow and succeed as a company.

You can provide excellent service on any budget as long as you keep an eye on feedback for new strategies and strike a healthy balance so that your customers continue to add value to your company over time.

Strategies to boost the Customer Lifetime Value

CLV#1. Maintain Your Relevance

An effective way to increase the number of repeat transactions you receive is to stay at the top of your customers' minds.

Customers are more likely to think of you when they're considering making a purchase if your brand is considered relevant.

It's a good idea to keep your site updated with high-quality content and stay active on social media. Some companies have been achieving this in an interesting way by utilizing influencers.

An influencer is someone who, among other things, will promote your product on their own social media platforms. While shopping, the majority of consumers say they were influenced by a social media post or a blog review.

CLV #2. Value-Added Cross-Selling and Up-Selling

Adding extra products and services to your shopping cart is a great way to increase sales while also increasing customer loyalty. It also has a negative impact on your cart abandonment rate.

Essentially, Amazon is keeping their brand in front of its customers' minds by providing them with discounted additional products.

Increasing the lifetime value of a customer relationship doubles the efficiency and lowers costs during the acquisition and support stages while driving revenue and growth during the retention, loyalty, and advocacy stages.

It's a cycle that involves more than just customer satisfaction; as customers become advocates, their advocacy can bring in new customers at a lower cost, restarting the cycle.

CLV #3. Improvements in Customer Service

The idea is that you continue to look after your customers even after they've purchased something. The key to your company's success is customer satisfaction. These are frequently viewed as services that convert a one-time customer into a repeat customer.

You can ensure that customers return to your brand by listening to their complaints, offering advice, and providing solutions to their problems.

CLV #4. Make inquiries

The most powerful and effective way to increase the lifetime value of your customers is through Upselling and cross-selling.

Long-term relationships can be fostered by developing effective strategies for increasing customer loyalty. Customers are more likely to stick with brands they are familiar with because they want to.

The term "customer optimization" is frequently used to describe this process. In order to connect the user to the brand, you must continue the marketing process even after the acquisition has been made.

Customer feedback surveys are an interesting way to engage with your customers and drive loyalty.

CLV #5 Loyalty Programs

Customers' lifetime value can be increased through loyalty programs. They have been shown to increase sales and keep customers coming back.

This strategy rewards existing customers for staying in the business relationship for a longer period of time. It can also be used to figure out who your most valuable customers are.