We have already spoken about key performance indicators, what they mean and why it is important to use them to monitor the business. Today we want to expand on probably one of the most significant and balanced marketing metrics in ecommerce — Customer Lifetime Value. What is CLV, how to calculate it and why it is so necessary?
What is Customer Lifetime Value
CLV is the projected net profit received from a customer during his lifetime at your company as a customer. CLV is also known as CLTV, or lifetime customer value (LCV), or life-time value (LTV). CLV is a central KPI because it focuses on the long-term value of the customer and ignores seasonal fluctuations or other trends. To increase CLV means to increase the profit of the company.
Every entrepreneur knows that the acquisition of a new customer is more expensive than a retention of the existing one. By focusing on returning customers, you concentrate on a long-term strategy that gives your business a higher return. CLV will also show you channels that give most profitable customers so you can guide your marketing efforts to work with them.
Having analyzed customers with high CLV you will understand how they join this group, and whether it was the credit of your marketing, sales or support team. This information will give you an idea of what to do to increase this metric for other clients.
How to calculate Customer Lifetime Value
The most simple way to calculate CLV is to sum the revenue you earn from a customer and subtract the money spent on acquiring and serving him. Notice that CLV can be calculated historically (all purchases are taken into account) or over a certain period of time. You can also predict a customer’s CLV.
How to increase Customer Lifetime Value
- Customer service. Improve your customer services, concentrate on the quality of your products, be patient and responsive, and respect your customers.
- Up-sell and cross-sell. Work with your existing customers and suggest them products they may be interested in. The likelihood of increasing CLV, in this case, is very high.
- Email and newsletters. Good old newsletters. It seems that this trick is too old but it still works. Remind your customers about yourself by sending interesting emails on a regular basis. To make it more effective, segment your customers and work with each group separately.
- Engagement points. Do you know where your customers spend their time? Great! And now present you webstore in those places. But avoid being pushy.
CLV is definitely worth adding to business strategy. Beat your competitors in this and enjoy the success.
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