The apparatus of acquiring customers is being expanded thanks to the development of the platform business paradigm; customer lifetime value in this paradigm is having the ability of estimating what period of time a particular consumer is used to consuming your products or services.
Hence, this can be of help in setting down your strategies in terms of garnering new groups of customers and interested cooperation. In short, this would be defined as the monetary value of a consumer connection.
Why is customer lifetime value important to your business?
When we have a long-term relationship with a customer, it is important to examine their behavior. And here, in the field of business, the most important behavior of a customer is how they buy. The gap between their purchases reflects many things and can influence some of your decisions.
As a matter of fact, through some data in terms of customer lifetime value you are able to give away if a customer can be in your 20% lucrative customer group on which you should pay your 80% of effort or no. In this regard, the crucial point is at a 50% retention rate, the average customer will only buy from the firm or brand for two years.
For example, whether it is right to give him a neutral incentive to continue working on subsequent purchases with a percentage discount. I will explain further with an example.
I have a client who buys $ 1,000 a year. If I give him a discount, and charge him $ 990, he will stay with me for another year, and this makes another $ 990. If I get $ 950 from him, it will probably increase to two years, but according to the results, the probability of this is not high, so it would be better for me to be happy with the next two years of cooperation, so far.
Having an uptake of what is the purpose of your customers’ purchases, and arranging the shopping experience for them, optimizing and profitable. Understand what keywords bring about your connection.
How to measure customer lifetime value?
The first purchase isn’t so reliable as to be the benchmark; the second purchase shows a minimum quantity of interest in your product and services, which can be a better embarking point to measure the customer lifetime. Moreover, the main drop off in draining customers happens in the first to then second friction. If you cross this bridge successfully you will probably gain the attention and trust of the customer for a fair amount of money and time.
In this regard, CLV or customer lifetime value is measured by the steps as follows:
- Specify the fingertips wherein the customer creates the value;
- Scoop up records to create the customer journey;
- Measure revenue at each purchase;
- Add together over the lifetime of that customer.
Some companies do not attempt to measure CLV and pinpoint the challenges of sporadic operations, inadequate systems, and non-targeted marketing. Today, we have the right measurement platforms to integrate these with the least amount of time and money. Simply, recapitulating speaking, a natural decision criterion is CLV which would be used in automation of customer relationship management as a social structure.
How to improve CLV?
Improving the customer lifetime value is the matter of customer experience at the end of the day. The more a customer is satisfied, the more he or she will purchase. To do so, first and foremost we should think about the customer experience and his or her journey. I listed below what I garnered as a bundle of tips:
- Ensuring that every employee is focused on the need to provide exceptional customer service.
- Providing employees with related content and knowledge in order to get closer to customers in order to develop their customer engagement;
- Teach employees to act on behalf of the customer;
- Settling down some basic standards and key measures of customer service;
- Investing in training for the management and employees of customers to help them become more knowledgeable and resourceful.
Plus, in below, I suggest some extra tips according to The Nichols Foods Ltd experience:
- Customer Relationship Values should influence decisions;
- Customers’ reactions to services are predictable and manageable;
- Customer satisfaction is not to be taken for granted —you need delighted customers all the time.
- Customer perceptions differ from reality self-evidently.
- Customers know what they want — you just need to ask.
- Your employees are also customers.
- Customer care needs simple strategies, standards and platform.
- Customer care needs the best leadership.
All in all, if I want to be frank with you, all the tips above aren’t good enough; you have to do so much better than just create satisfied customers in order to compete successfully in today’s market.
Customer Lifetime Value Examples
To be more explicit, I want to show you some examples of how to calculate the CLV in small businesses:
Let’s consider a typical café customer who visits once a month and spends $18 per visit over an average lifetime of 10 years. The customer lifetime value would be calculated as: $18 x 12 x 10 = $2,140.
Here is another example:
If I have a customer who buys me a pair of shoes a year and this costs $ 100 and this is repeated for five years, that customer is worth $ 500.
Final Words
Calculating customer lifetime value is crucial to optimize the market decision-making process, campaign and customer churn. You need to know how to identify your best and valuable customers with our Customer Lifetime Value formula or a good platform in this regard for larger scales of the task.
In such a platform, you will put sample retail data, build demos to explore purchase behavior history, and use machine learning to find out the likelihood rate of future interactions. Overall, measurement of customer loyalty in terms of purchase monetary value, probability of purchase and repurchase, purchase frequency and sequence etc., all can be observed through this means.
