Customer Lifetime Value (CLV)

 

What is Customer Lifetime Value?

Customer Lifetime Value is a widely used marketing metric made up of two components: a customer's current value and the potential value that customer can bring to a company. 

The goal of a CLV-driven marketing strategy is to build long-term customer relationships, since retaining existing customers is far more profitable than acquiring new ones. 

How to calculate Customer Lifetime Value

There are several different methods for calculating Customer Lifetime Value, but you don't need to be a maths genius — just a calculator and a few data points, and you'll have a clear picture of where your customer lifetime value stands right now. 

One of the simplest ways to calculate CLV is to take the average order value, multiply it by the average customer's purchase frequency and divide that figure by the average customer lifespan. Here's an example:

• Average order value: €150
• Customer purchase frequency: 2 times a year
• Average customer lifespan: 3 years
• Result: 150 x 2 = €300; 300 / 3 = €100

This figure would be a solid number for setting up an online store. Of course, there are many variations of this method, depending on how deep and technical you want to get. 

How to improve Customer Lifetime Value

Once your KPIs are in place, it's time to optimise the result. To find out whether your customer value reflects a healthy margin, compare your results with industry benchmarks, check current averages and get to work. What could improve your customer lifetime value?

Help your customers

No matter how good or effective your product is, if your customers don't know how to use it to solve their problems, they'll drop it. Help your customers get the most out of your products or services and build long-term loyalty. 

Listen carefully

If you listen to what your customers are asking for, you'll get a better sense of their preferences and create a better experience at every interaction. Understanding this lets you connect with each of them personally and raises the chances they'll stick around longer. 

Improve satisfaction

Don't ignore your unhappy customers — they're just as important, if not more. Pay attention to them and find out which parts of the business need optimising and which issues you should plan for. These are customers who've seen a flaw in the brand, and there's still a chance to save the relationship — at a lower cost than acquiring a new customer. 

Build community

Building a community of like-minded users is another way to increase your Customer Lifetime Value. Leaving a brand behind is harder when you also have to leave a community you feel part of. Build loyalty around a community and it'll pay off. 

Customer loyalty equals revenue growth, and you should be ready to take significant steps to increase it. If you still have questions about how to increase your customer lifetime value, get in touch with us and ask us anything you need.