RESULTS RADIO..."Let's Grow Together"
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Show Objectives - The Why
Customer lifetime value (CLV) is one of the key metrics to track as part of a customer experience program. CLV is a measurement of how valuable a customer is to your company, not just on a purchase-by-purchase basis but across the whole relationship or lifetime.
Knowing the CLV helps businesses develop strategies to acquire new customers and retain existing ones while maintaining profit margins. An increase in customer retention rates by only 5% has been found to increase profits anywhere from 25% to 95%.
CLV goes hand in hand with another important metric – CAC (customer acquisition cost). That’s the money you invest in attracting a new customer, including advertising, marketing, special offers and so on. Customer lifetime value only really makes sense if you also take the CAC into account.
You don’t need to get bogged down in complex calculations – you just need to be mindful of the value that a customer provides over their lifetime relationship with you.
Key Issues - Owner Perspective
What You Need to Know - The What
Customer lifetime value (CLV), sometimes referred to as lifetime value (LTV), is the profit margin a company expects to earn over the entirety of their business relationship with the average customer.
The customer lifetime value must account for customer acquisition costs (CAC), ongoing sales and marketing expenses, operating expenses, and, of course, the cost required to manufacture the product and services the company is selling.
Many companies overlook this valuable metric and instead optimize for a single sale in the near term. It’s still important to find new customers for the growth of the company, but optimizing the lifetime value of existing customers is also essential for a company to sustain a viable business model.
Your customer acquisition costs may equal more than you make from a first purchase, but are you still making money from that customer in the long run? Figuring out the lifetime value of a customer to your company will give you the answer. CLV also allows you to segment your customers based on their total value to your business.
Since customer lifetime value is a financial projection, it requires a business to make informed assumptions. For example, in order to calculate CLV, a business owner must estimate the value of the average sale, average number of transactions, and the duration of the business relationship with a given customer. Established businesses with historical customer data can more accurately calculate their customer lifetime value.
Another benefit is that CLV also tells you how well you’re resonating with your audience, how much your customers like your products or services, and what you’re doing right, as well as how you can improve.
What You Need to Do - The How
Customer Lifetime Value Model
Written by Donna Kunde
new choice for BUSINESS SEARCH
All IBGR Shows Notes are available for download