Customer Lifetime Value (CLV) Roadmap: How To Calculate, Track, & Increase?

Customer lifetime value (CLV) roadmap_ How to Calculate, Track, & Increase_
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Customer Lifetime Value (CLV)

What is the Customer Lifetime Value (CLV)?

The entire revenue a company anticipates from a single customer account is known as customer lifetime value. This includes both the value of a customer connection and the revenue. CLV assigns a dollar value to a consumer. This allocation of value helps us better understand the connectivity of customers and segment them. This value encourages firms to shift their focus from profit to healthy customer relationships. CLV can alternatively be defined as the connection’s monetary worth based on anticipated future cash flows from client connections. Various factors affect this CLV, which determines how much profit your company can make from individuals.

This is an important metric for marketing professionals; hence, it must be measured adequately. There are several historical methods to calculate this value, in which past customer data is used. This procedure requires proper segmentation of customers on the basis of purchasing frequencies and products. Then the average revenue is calculated on the basis of the obtained data per customer for each segment. Next, the average retention rate is calculated. Finally, multiply the average revenue per customer by the typical retention rate to determine the customer lifetime value for each segment. This value is important as it helps you understand that there is a need for acquiring or retaining customers.

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What are the factors that affect CLV?

Every action your business takes may have unintended outcomes that affect customer lifetime value. So, a marketer must have a strong understanding of what factors influence CLV as follows:

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Customer behaviour

People engage with companies regularly, and sometimes things don’t go as expected. Customer experiences affect their value. When they had a bad experience, anything from waiting too long to face challenges, they might not go a long way with the company. On the other hand, good services give customers a pleasing experience. Hence, customer behaviour directly impacts CLV.

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Customer satisfaction

In general, growing CLV is advantageous to all business types, and customer happiness has a significant impact on CLV. Customers who are happy with the service are a benefit to the company because they won’t look elsewhere. These loyal customers can generate a constant revenue flow and help build a brand that attracts new customers. This ultimately increases your customer’s lifetime value.

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Economic factors

Consumer purchases vary significantly under different economic conditions. There are abundant economic factors that affect the demand for consumer goods, including employment, wages, prices, and more. These factors influence the consumer’s behaviour and purchasing pattern, which directly affect CLV.

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Competition

A comparison of CLV with other competitors can be beneficial and show how well your business is performing. It helps you identify areas for improvement. For example, if your CLV is lower, you might have to conduct programmes to retain more customers. You will have an advantage in drawing in more clients if your CLV is higher.

Benefits of tracking Customer Lifetime Value

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It helps you identify hero customers

It’s a fact that nothing can be improved until we measure it. Once you start measuring CLV and cutting down on various irrelevant components, you can induce strategies around pricing, sales, advertising, and customer retention to increase revenue and reduce costs.

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Knowing your CLV can help you increase revenue

It’s a fact that nothing can be improved until we measure it. Once you start measuring CLV and cutting down on various irrelevant components, you can induce strategies around pricing, sales, advertising, and customer retention to increase revenue and reduce costs.

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It helps you identify hero customers

The financial worth of each customer is calculated using CLV. This demonstrates how valuable a customer is over time, albeit not all customers are regarded equally. This CLV helps identify the main customers whose value is greater in your business and, hence, maintain that relationship.

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Knowing your CLV can help you reduce acquisition costs

Customer lifetime value is a crucial indicator to monitor since it is less expensive to retain existing customers than to find new ones. Recent studies have revealed that expenditures for acquiring new clients have significantly increased in recent years. So focusing on increasing the current CLV of existing customers is a great way to accelerate growth.

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Tracking your CLV can help identify your best products

Measuring customer lifetime value can help break down the irrelevant services of a business and help you focus on key products that seek the attention of customers and increase sales. Primary products help retain customers for the long term and encourage them to spend more.

3 tips for increasing CLV

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Gamified loyalty programmes

Although many brands have loyalty programmes, customers forget that they have even joined because the perks just aren’t good enough. Creating irresistible loyalty programmes can be a plus for customer lifetime value. This boosts the duration of moderate customer lifespans and purchasing frequencies.

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Relationships on non-transactional platforms

Email marketing is far from transactional and is a great medium to connect directly with your customers. Onboarding processes can be enhanced through email marketing. Automated emails or texts can be sent to welcome them. These gestures make this relationship strong.

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Personalisation at multiple levels

People want to feel like they are part of a brand when they value it. Make sure your clients always feel valued and special. Engaging and appreciating your best customers can help build a strong presence. From featuring them in your content to surprising them through different mediums, you can create the best personalization experience for your customers.

Conclusion

In order to make wise marketing choices, it is important to consider customer lifetime value. This aids in forming your plan and clarifies if you should prioritise short-term or long-term marketing initiatives. Customer relationships are a vital part of every business, so make sure you get the most out of them. There are numerous benefits to focusing on client lifetime value.

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