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Posted on: 2019-09-23 03:41:35

Customer Lifetime Value And Its Importance - CLV

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If you are a business owner and the phrase, ‘Customer Lifetime Value’ sounds alien to you – it shouldn’t. Not anymore. The quicker you learn the importance of this phrase and the impact it could have on your business, the more ahead of your competitors you will be.  Customer Lifetime Value or CLV, for short, calculated accurately over time serves as a useful metric that helps track important milestones of your business. It tells you just how well your products and services resonate with your customers as well as how you can further improve them to increase sales.  So, a good understanding of this value is crucial in increasing the overall health of your business. Now, let’s look at some of the impact it creates.

 

What is Customer Lifetime Value?

 

CLV can be calculated using a few different formulas but is generally described as the average amount of money a customer will spend over the entire life span of his or her relationship with your business ― minus the acquisition cost. So CLV in effect, looks at how valuable a customer is to your company over a long period as opposed to just the first purchase. So how is this value important to your business?

 

Helps Market Targeting and Advertising

 

Customer lifetime value helps you figure out who your best and ideal customers are.  This is valuable information to have on hand as it guides you in customising your products and services to cater to the needs of your loyal customers with the goal of retaining them. When you have detailed information about what your regular customers desire, it makes it easier for you to continue to target that specific market. In so doing, you are saving money by carefully crafting advertisements that better appeal to this target segment who are more likely to re-purchase with you – yielding higher profits for your business. In short, when you know your CLV, you can continue to improve it, thus optimising market targeting.

 

 

New Customer Acquisition vs Retaining Existing Ones

 

Customer lifetime value helps you navigate your business efforts. How? It tells you how much money and time you should spend towards acquiring new customers as well as how long you should be focusing resources on existing loyal ones to yield maximum returns for your business. This crucial information helps you allocate your budget accordingly.

 

An increase in CLV, means your business is making a better impression on your existing customers and a more positive impact on their spending habits. This feedback helps you employ similar techniques on future customers with the goal of converting them into returning ones.  Remember, your customers are worth more than the money they spent on their first purchase with you. They amass so much more future value if you can retain them.

 

In general, it costs more money to acquire new customers than to retain existing ones. So, work on retaining existing customers through loyalty tools like digital stamp app, establishing a loyalty rewards program or even offer complementary products and services to increase the purchase probability of your existing customer pool. Focusing too much on new customer acquisition and less on pleasing and retaining loyal ones can bring down your CLV.

 

As CLV impacts customer retention rates, it also reveals the level of brand loyalty your business commands. This helps you greatly in charting and positioning your branding campaigns, moving forward. The more etched your brand is, in the minds of your customers, the more likely they are to stick to your brand, and drive up your customer lifetime value.

 

In summary, retaining regular and loyal customers increases your CLV. Good customer relationship management helps customers feel appreciated and rewarded for every dollar spent – and keeps them coming back. More importantly striking a balance between nurturing existing customers and building campaigns to attract new ones will keep the health of your business in check.  

 

If customer lifetime value is not a part of your business strategy yet, now is a good time to start including it in. With more effort spent on increasing it, the more revenue you will generate for your business.

 



About the Author
 

Nisha Abu Bakar is a copywriter and content creator for BeeJaune Consultancy Pte Ltd. Her portfolio includes advertorials, blog articles and social media content.