An Introduction To Customer Lifetime Value

While gaining new customers is a goal for any business, keeping your current customers is not something to overlook. Customers who have already purchased from you are easier to keep, and more likely to shop with you again. Figuring out the customer lifetime value (or CLV) can help you retain your current customers and extend their relationship with you.

What Is Customer Lifetime Value?

Customer lifetime value is the total amount of revenue earned from a single customer, from their first purchase to their last purchase. The longer a customer continues to purchase from you, the higher their CLV will be. Having a high customer lifetime value not only brings in more money from repeat customers but also allows you to spend more on acquisition and retention for new customers.

Customer lifetime value is important because it allows you to see how often the average customer stays with you, and gives you an idea of how much revenue you will have coming in. It also helps you see when customers leave, gives you an idea of why they are leaving (or staying), and gives you insight into who your target audience should be.

How To Calculate Customer Lifetime Value:

Finding your customer’s lifetime value requires a few steps. First, find your average order value. To find this, you’ll choose a time frame to analyze. This can be a month, a quarter, a year- whatever you think will be most helpful! Then you will find the total revenue within that time frame and divide it by the total number of orders. Your next step is to find the average purchase frequency. Using the same time frame, you’ll divide the total number of orders by the total number of customers. Once you have those, you’ll find the customer value by multiplying the average order value and average purchase frequency. The last step is the average customer lifespan, which is found by taking the sum of all customer lifespans and dividing it by the total number of customers. Once you have those numbers, you’ll multiply the customer value and the average customer lifespan. If numbers are not your thing, you can get help from an online CLV calculator like this one.

How To Increase Customer Lifetime Value:

Having a high CLV is a good goal for any business to have. Start by telling new customers what value you can add to their lives. Tell them about your company and products, and why they should care about you. Make sure that your website is easy to navigate and has quick loading times.

Make your emails and marketing intentional. If customers opt-in to your email list, give them sneak peeks at new products, or special access to a sale. Your customers want to feel important, so show them how much you appreciate them!

Referral programs can be a great way to build customer lifetime value. Customers willing to spread the word about you are more likely to do so if they are rewarded for it, and word-of-mouth marketing is one of the most reliable ways to bring in new customers. If you are not ready to set up a referral program, loyalty programs are another great way to encourage customers to stay with you.

Customer lifetime value is a very useful metric to help you see where you stand with your customers. If your CLV is lower than you would like to be, use these tips to help you grow and improve.