Retainment of customers contributes to a company’s success is the retention of customers. Customers should be so satisfied with the company that they keep returning to it. A company is going to win new customers and also lose some customers over the years. This is where the importance of the Customer Lifetime Value comes into play. It will bring forth information about whether a company is able to develop a stable relationship with its customers.
CLV – Everything you need to know about it
There are a few different factors that contribute to the Customer Lifetime Value. These are strategically attracting, engaging, and retaining a customer. You have to consider the attrition rate and the loyalty of your customer. Measure the performance by having scalable marketing and sales. CLV projection helps to determine how much profits can the span of a business relationship with a particular customer bring. CLV helps you to make the most out of your business, helps you with retaining customers, and increases revenue. Learning how to calculate CLV will help you boost the profit that your company can make from its customers.
What is CLV? Understanding what Customer Lifetime Value is
CLV or CLTV is a metric that uses a comparison between the predicted lifespan of the company’s customer and also their (customer’s) revenue value. Customer Lifetime Value is an indicator of how much profit a business can hope to make from a customer. In marketing, measurement of CLV is one of the important behavioral analytics software like WatchThemLive which helps a business in customer acquisition and retention. Customer Lifetime Value determines which customers are most profitable. It also helps to predict how much a customer is likely to spend during their lifetime. A relationship manager/ customer success team and a customer support team can use the CLV to plan strategies like loyalty programs. These strategies are aimed at bringing down the churn and escalating customer loyalty.
Calculating Customer Lifetime Value – How to measure it?
If your business is brand new, you might be thinking about what to do to increase CLV. Use a visitor tracking tool for your website or page. This will help you in managing the experience of customers. It will enable you to measure and monitor the movement of your visitors. You can use the data to turn visitors Into leads, which means working on customer acquisition and better marketing. If you want to develop brand loyalty amongst your customers and keep them engaged effectively, you must pay heed to CLTV. So how do you calculate it? To put it simply, to calculate CLV, you have to follow a formula. There are a few different ways of calculating it. But we have shared a simple formula. The formula is to multiply Average Person Value (Average Transaction SIze), Average Person Frequency (Number of Transactions), and Average Customer Lifespan (Retention Period). Let’s take you through each step of calculating the CLV using this formula:
1st step: Calculating the Average Person Value
You have to find out the APV – Average Purchase Value or Average Order Value. If you have not tracked the Average Sale Value, you can take into account the data for the last one to three months instead of the whole year. First, you have to get the total revenue earned. Then you have to divide that number by the total number of purchases. The period of both has to be the same and equal. A.P.V = Total Revenue / Total number of orders placed.
2nd step: Determining the Average Purchase Frequency
You will be able to arrive at the average purchase frequency by dividing the total number of orders placed by the number of unique customers of accounts. You must remember that even if a customer has made multiple purchases in that time, you will count them only once. A.P.V. = Total number of purchases / Unique accounts.
3rd step: Measuring the Average Customer Lifespan
The A.C.L. indicates how long your company has been able to retain the customers on average. You can also use CRM software to gather this data. Otherwise, you have to take the help of past metrics to calculate the length of time your company has been able to hold on to your customers. You have to first add the lifespans of all your customers to arrive at a total. Then you have to divide the sum by the total number of customers. A.C.L. = Total of customer lifespans / Number of customers. You can also arrive at the ACL by using the Churn rate. This formula is especially helpful for new businesses. When using churn rate, use the following formula: A.C.L. = 1 / Churn Rate.
4th step: Finding the CLV
Now that you have the three required data or inputs, you can calculate the Customer Lifetime Value using the following formula: C.L.V. = Average Transaction Size * Average Purchase Frequency * Average Customer Lifespan.
Customer Lifetime Value or CLV is a very important metric for any business. It is crucial because it helps to forecast how much profit the company is going to make from a customer. Clv is important if you use an influencer marketplace like Ainfluencer and invest in influencer marketing. A company can use CLV to determine customer acquisition plans and set improvement goals. CLV will tell you which of your customers make the most purchases and how long you can expect them to be loyal to you. If, as a business owner, you keep track of CLV and make an effort to enhance it, your business will see growth.