Episode C1.009 Determine the Lifetime Value of Perfect Customer(s)

RESULTS RADIO..."Let's Grow Together"

Introduction
As of Monday morning we had Mozambique join the audience making it our 117th country, not bad for just our Second Season on the air. We currently have entrepreneurs and owners in 60% of the global business community tuning in daily - thank you and we are just getting started!
​
We have three more weeks of shows left - 009 through 012 before Season 3 starts and everyone is excited about our hard launch on October 5th from the Kilo Market (Australia, New Zealand, Singapore, Philippines, Taiwan, Hong Kong, and surrounding areas). 

There are several ways you can interact with the station and our OnAir Hosts:

• Pulsating ? on every page. It is a direct link to the Host and they will respond to your question during the show;
• Hit us up on social media - Facebook, Instagram, LinkedIn, and Twitter. Our handle is ibgrnetwork;
• JOIN our Community of Commerce and become an insider with direct access to our Hosts and support materials discussed on the show.​

​JOIN our Community and Let’s Grow Together!

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

1. average customer lifespan, 
2. customer retention rate, 
3. frequency of purchases, 
4. amount of purchases, 
5. profit margin per customer, 
6. create target metrics based on historical data - research

​
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

1. Calculate average purchase value: Calculate this number by dividing your company's total revenue in a time period (usually one year) by the number of purchases over the course of that same time period.
2. Calculate average purchase frequency rate: Calculate this number by dividing the number of purchases by the number of unique customers who made purchases during that time period.
3. Calculate customer value: Calculate this number by multiplying the average purchase value by the average purchase frequency rate.
4. Calculate average customer lifespan: Calculate this number by averaging the number of years a customer continues purchasing from your company.
5. Calculate CLTV: multiply customer value by the average customer lifespan. This will give you the revenue you can reasonably expect an average customer to generate for your company over the course of their relationship with you.
6. Improve customer lifetime value: Customer Satisfaction - Making your customers happier will usually result in them spending more money at your company; Customer Retention - Acquiring a new customer can be a costly affair. This makes it imperative that your business identifies and nurtures the most valuable customers that interact with your company. By doing so, you'll gain more total revenue resulting in an increase in customer lifetime value.
7. Calculate the lifetime value by multiplying the average value of a sale, the average number of transactions, and the average customer retention period. Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period
8. Since the lifetime value of a customer is calculated in gross revenue terms, it does not take operating expenses into consideration. How much did it cost to make the product, advertise, and manage operations? Take these operating expenses into account when calculating customer lifetime value. Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period × Profit Margin Or simply: Customer Lifetime Value = Lifetime Value × Profit Margin
9. The rate of attrition, or churn rate, differs from business to business, depending on the competitive advantage a business can command. Startups, for example, experience a much larger attrition rate than a given industry’s entrenched incumbents. Churn rate is calculated by: Subtracting customers at the end of the period from customers at the beginning of the period. Dividing the difference by the number of customers at the beginning of the period.

 
Resources: 

• https://blog.hubspot.com/service/how-to-calculate-customer-lifetime-value#:~:text=To%20calculate%20customer%20lifetime%20value%20you%20need%20to%20calculate%20average,to%20determine%20customer%20lifetime%20value.
• https://clevertap.com/blog/customer-lifetime-value/
• https://www.qualtrics.com/experience-management/customer/customer-lifetime-value/
• https://exponea.com/blog/customer-lifetime-value-guide/
• https://www.crazyegg.com/blog/customer-lifetime-value/

Shows

• Previous: Episode C1.008 Create a Profile and Buying Persona for Perfect Customer(s)
• Next: Episode C1.010 Identify Marketing and Sales Channels to Reach Perfect Customer(s)

Written by Donna Kunde

​