Customers are the backbone of any business, and the growth depends on the period they stay glued. That is where the Customer Lifetime Value (CLV) comes in. CLV is a metric that businesses use to measure how long their customers are engaged. If you also run a business and aim for long-term success, know that the customer lifetime value equation is crucial.
There are multiple parameters that you can infer by simply monitoring your CLV. It represents your customer satisfaction (CSAT) score and the total expected revenue a company can get from a customer. You must be wondering, what is the CSAT score? It is the customer satisfaction level that the business has achieved. The CSAT score and CLV are directly related to each other. In perspective, customers will have a longer lifetime with a brand only when they are satisfied with their products or services. In this article, we will discuss the metrics used to measure CLV for a business and the ways to increase it.
5 Key Metrics to Measure Customer Lifetime Value
We have mentioned that customer lifetime decides the revenue growth and the market reputation a business earns. But how will you calculate it? Below are the metrics you can consider while calculating your customer lifetime value.
-
Purchase Frequency
If the customer had stayed long, he would have made frequent purchases. Thus, one metric you can use is checking the purchase frequency of your customer. Check your buyer’s data to learn how often a customer buys from you. If the purchase frequency is high, you know that the lifetime of that particular consumer is long. You can opt for sales and referral programs that encourage repeated purchases to increase your purchase frequency.
-
Average Order Value
As the name suggests, AOV is the average amount a customer spends per purchase. If the billing value is high, it will directly impact the customer’s lifetime value. So, by checking the order value, you can get an idea about the CLV. To increase this metric, you can implement upselling techniques, such as creating a combo of related products and offering exclusive deals. It will increase your average order, and eventually, your CLV will improve.
-
Customer Retention Rate
If there is one metric that directly signifies your customer lifetime value is, your retention rate. A higher retention rate means your customer stayed for a long time period and made recurring purchases. It signifies that customer lifetime in terms of brand engagement is considerably higher. So, you should strengthen your relationship with the customer and make them comfortable with the brand to not let them think of any other business.
-
Churn Rate
The churn rate refers to the percentage of customers who break ties with your business. The churn rate is inversely proportional to CLV. Thoroughly check customer feedback and identify pain points to reduce churn. Plan specialized campaigns for customers who are at risk, addressing their concerns and giving them reasons to stay.
-
Customer Acquisition Cost
CAC is the money spent to attract a new customer. To optimize your customer lifetime value equation, ensure that the acquisition cost doesn’t exceed the value they bring in their lifetime. You can look for cost-effective channels and invest in customer retention to reduce churn and maximize the returns on your acquisition efforts.
Ways to Increase the CLV for Your Business
- Offer personalized services to your customers. The market has countless businesses offering similar kinds of products and services. So, if you want to retain your customer for long, focus on giving them personalized services.
- Make sure your customer support system is exceptional. Most customers break the ties because their queries are left unanswered. So, leave no room for it by building an efficient customer support team.
- Encourage the customers to make recurring purchases by educating them about your products or services. Keep product tutorial videos or send catalogs to your customers to let them know what you offer and how it can benefit them.
- Another way to increase the customer’s lifetime value is to make them a part of your referral program. Give some added incentive to those who encourage new customers to sign up for your services. This way, you get new customers, and the older ones also get retained for a long time.
It is fair to say that measuring and optimizing the customer lifetime value is crucial for any business. So, for any business owner, focusing on the key metrics and keeping track of the CLV is significant. Using the information you draw from this calculation, plan and implement effective business strategies to increase your customer lifetime value. Understand that paying attention to details will help you build cordial relationships and boost business growth.
