Customer Lifetime Value (CLV): Defining Growth Through The Ultimate Measure Of Success

Regardless of industry or sector, business growth is a key part of success. But, what constitutes growth and how do you know when you’ve been successful? More customers, an impressive turnover and a varied demographic can all be signs of business growth, but these aren’t enough to definitively say that your business has grown in any significant way. After all, having more customers doesn’t necessarily mean business growth, as there’s no guarantee that they’re spending a lot with you. Similarly, a larger turnover is only beneficial if your profit also grows.

This is why it’s important to look at Customer Lifetime Value (CLV), which is a good measurement of success and growth for any business. Rather than looking at new customers, CLV looks at the value of your business’ relationships with existing customers.

What is Customer Lifetime Value?

Customer Lifetime Value (CLV) is a metric used to show business growth, and it centres on finding the total revenue a business can expect to earn from a single customer over the entirety of their relationship. Instead of looking at how much a customer spends in one transaction, it also factors in their future purchases, repeat business and potential referrals to friends, family and colleagues.

Customer Lifetime Value (CLV) is calculated using the following formula:

CLV = Average Order Value x Frequency Rate of Purchase x Average Customer Lifetime

CLV helps a business to understand the long term value of acquiring and retaining customers, rather than focusing on engaging new ones. With this information, a business can make informed decisions regarding marketing, customer service and overall business growth.

Why is CLV a Measure of Success?

CLV means that your customers are loyal, and stay with you for a long period of time. They’re not looking for alternative products or services, and they’re not taking their business to another brand. CLV is also an indication that your customers are happy with what you are providing them with, meaning that you must be doing something right.

It looks beyond the idea of increasing your customer base and appealing to a wider target market, and focuses on improving your relationship with existing customers. These are customers that have already found your business, and so they are likely to bring in recurring sales, revenue and referrals. This tends to be a lot cheaper than marketing to a completely new market, hoping to appeal to people for the very first time. After all, it doesn’t cost your business anything to bring in a customer that’s been referred by someone else. With CLV, you are getting the most out of your existing customers.

How to Improve Your Business’ CLV

There are a number of ways to boost CLV, all of which are aimed at increasing the revenue that each customer brings throughout their entire relationship with the business.

Improve Customer Experience – Improving customer experience is an effective way of improving CLV. Providing good customer service, personalised interactions and seamless experiences across all touchpoints helps to encourage loyalty and repeat purchases. Customers are more likely to return to you and refer others if they have had a good customer experience.

Create Loyalty Programs – You can reward customers for their loyalty with exclusive offers, discounts, promotions or reward systems that give them a reason to make repeat purchases. This encourages ongoing loyalty with the brand, and deters them from shopping elsewhere, as there’s no benefit to doing so.

Upsell and Cross Sell – Find ways to upsell higher value products to customers, or cross-sell complementary items based on their past purchasing behaviour and preferences. They might not have considered buying anything else, but the suggestion could be all it takes for them to do so.

Encourage Referrals – Referrals are an excellent way of boosting CLV, and it requires very little from you in terms of time and money. You can encourage referrals by starting referral programs, giving customers an incentive to refer friends, family or colleagues to the business. This expands the customer base and increases CLV through word-of-mouth marketing.

Offer Value-Added Services – You can encourage customers to spend more by offering additional products, services, or features that complement the customer’s purchase. This increases their overall satisfaction with the shopping experience, and the likelihood of coming back for more.

Focus Customer Retention – Customer retention is a huge part of CLV, which is why you should be implementing strategies that focus on retaining customers for longer. This could include proactive customer support, targeted marketing and remarketing campaigns, and personalised offers.

Think About Customer Segmentation – Not all of your customers are the same, and so they are likely looking for slightly different experiences with a business. Separate customers based on their behaviour, preferences and past purchases, and use this information to ensure your marketing efforts and offers are tailored and relevant to them.

Use Customer Data – There are a lot of ways to gather customer data, so use it to your advantage. Continuously track and analyse customer data – such as purchase history, engagement, spending and reviews – to identify ways that you could improve the customer experience, further boosting CLV.

There’s no need to be daunted by the prospect of calculating, utilising and improving your business’ CLV, not when Profici is on hand to help. At Profici, our focus is on business growth. Regardless of how large or small your business is, and regardless of the industry or sector that you work in, we are on hand to help you achieve growth and success. Contact us today to find out more about who we are and what we do.