Understanding Your Customer Lifetime Value – What You Need to Know
Your customer lifetime value (CLV) is one of the most important metrics to measure when assessing the success of your business activities. Therefore, if you haven't already calculated yours, now is the time to do it. Let's examine what this metric is and how you can utilise it to improve your company's sales revenue.
What Is Your Customer Lifetime Value?
Sometimes referred to as life-time value (LTV) or lifetime customer value (LCV), CLV the amount of net profit that you can expect to make from a customer over the course of your relationship with them. The basic principle is a simple one. If a client is loyal to your company for ten years, for example, and your annual net profit from that customer is £25k, their CLV will be £250k. If you operate a company where clients' pay you set amounts at regular intervals, it's easier to work out your CLV, but you can still estimate it if your sales pattern isn't as predictable.
If you want to calculate your historic CLV more accurately or predict what it's likely to be in future, there are formulas that you can use. You'll need access to data about your business, such as your average profit margin per sale, your customer acquisitions costs, the average length of your customer relationships, your average transaction spend and more. If you work with professional business growth specialists, such as JDR, they'll be able to guide you through the process.
What Benefits Could Knowing Your CLV Bring?
If you know your CLV, you can assess the success of your marketing activities more accurately and make well-informed decisions about your expenditure. For example, if you engage in an inbound marketing campaign that costs you £1 per customer that you acquire and each product you sell nets you a profit of £0.75, it will seem like you've made a loss. However, if your CLV is £100, that campaign suddenly becomes a success.
What's more, once you've calculated your CLV, you can take steps to improve it – and that could dramatically affect the profit you make. You might want to implement a loyalty programme, for example, to increase the length of your customer relationships, or focus more on upselling and cross-selling your products and services, so you can increase the number of customer transactions. You could also launch email marketing campaigns to persuade customers who haven't engaged with you recently to buy from you again, or direct them to content that might interest them on your website. It's also worth examining your customer support and retention processes to ensure that the customer service you're providing isn't causing you to lose repeat sales.
Find Out More
To find out more about how your CLV can benefit your business, get in touch . We can help you increase your average CLV and use it to create a marketing plan that delivers, as well as assist you with your calculations.
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