Customer Lifetime Value (CLV) is the average amount of money customers will spend over the entire duration of your business relationship. Think if it also as projected revenue that a customer will generate during their lifetime.
The data for this metric can be discovered in eCommerce tools such as Shopify.
How to calculate Customer Lifetime Value:
With the wide variety of variants and nuanced approaches, we consider the simplest way to calculate Customer Lifetime Value is dividing into three steps:
Find your average value of a purchase
Multiply by the number of times the customer will buy in a given time period
Multiply by the average length of this customer relationship
Using the time period of years is the easiest to digest and most popular, so let’s look at a visual:
So if a customer buys a $30 shirt twice a year, and the average customer relationship is five years, we have discovered the Customer Lifetime Value to be $300 ($30 X 2 X 5).
Notes
- In Yaguara Customer Lifetime Value can be segmented when creating a Key Result:
Why Customer Lifetime Value is important:
Customer Lifetime Value is a critical metric because it can help you make logical decisions around your marketing and sales budgets. If you know how much money you can expect to earn from a segmented customer, you can make a more faster, better decisions about how much time and money to spend on marketing channels to acquire them.
Instead of strategizing around rapid acquisition and how cheaply you can do so, Customer Lifetime Value helps guide your team on how to optimize spending for maximum value rather than minimum cost. By imposing this fiscal discipline the metric assures future customer profitability is top of mind..
How to improve Customer Lifetime Value:
The customer is always right
According to a HubSpot Research report on customer success, 55% of growing companies think it's "very important" to invest in customer service programs. Companies with stagnant or decreasing revenue, only 29% said this investment was "very important." Companies that are actively geared towards their customer's success are experiencing more revenue because of increased customer satisfaction.
Social selling
It is highly likely that consistent customers are following with your social presence. Keep in touch and target them with offers to come back to your site with relevant offerings and appreciation. Take advantage of social content to keep the traffic flowing from one online presence to your store.
Introduce loyalty
Offering a loyalty program allows customers to earn “points” toward a future purchase and save money in the long run. Smile.io is one of our favorite tools making this easier for eCommerce.
Return to sender
Make it easy for customers to return items they’ve purchased from you. Making it hard or expensive will significantly reduce the odds of them making another purchase. This is how customers will remember you.
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