What is Customer Lifetime Value and How to Calculate the CLV

 

You’ve probably heard the abbreviation CLV thrown around casually amongst business owners. But what does it really mean? Does clv marketing have a significant impact on your conversion rates? Find out more about one of the key stats used to forecast your customer journey success in this article.

What is customer lifetime value?

If you’re searching for “customer lifetime value definition” then you’re probably looking for ways to optimize and make the most of your buyer journey. More than that, you’re probably wondering what it does and how it is relevant to your business.

In layman’s terms, CLV helps you determine a favourable range of cost in acquiring a customer. Basically, you’re able to calculate exactly how much you should be spending on your customer journey campaigns. This includes ads and other marketing tactics from the moment you collect your leads until after they surrender their payment information to complete their purchase.

Think of it this way. If you’re spending around $200 on average until a customer is ready to make a purchase, you need to make sure that they’re spending at least $201 on your business. Otherwise, your business is simply making losses.

Why is it important to measure the LTV?

LTV (lifetime value) calculation is important because it is one of the best ways you can calculate your profits. The basic principle is that the higher your customer lifetime value is, the larger your profits are.

It’s no secret that you will need to spend money in your quest to acquire your customers or to retain your existing buyers. But the success of your business lies in your strategy on maintaining a balance between the cost of acquisition and the value of your customer over a period of time.

Of course, it would be more ideal if you were to see that your customer’s lifetime value is higher than your acquisition cost, which is the literal dream for many venture owners. After all, isn’t that the ultimate goal?

As with any aspect of business, being aware of where your money is going as well as the average spend of your customer will help you optimize areas where you’re spending money but not wisely.

Basically, it’s one of the ways you can track and make adjustments to your customer journey so you’re not spending money in ineffective areas. This way, you’re not spending more than you need to or more than what’s working for your business.

How to calculate customer lifetime value?

The customer lifetime value formula that you should be using is simple. It should be:

(Average order total) x (average number of purchases in one year) x (average retention time measured by years)

This will base on the current data that you have and will determine your customer lifetime value model. It’s easy and shouldn’t take more than five minutes.

How to increase customer lifetime value?

The fastest way to do this is to take a good, long look at your CLV journey and find areas where your efforts are not performing as well as they should be. You shouldn’t be wasting your time on efforts that would only serve the platforms or applications you’re spending your resources on.

Of course, if you really want to be sure, there are more ways than one to make your customer lifetime value improve. Take a look at those tried and trusted methods below.

Optimize your onboarding process

The first impression is the most important stage of your customer journey. This is why you need to put most of your focus on onboarding your leads. Here are a few tips you can utilize to make sure the process goes as smoothly as possible.

  • Figure out your target buyer and tailor your entire onboarding process to meet their preferences and needs
  • Utilize your A/B split testing feature to measure responses to various versions of your marketing approaches
  • Go for a strategy that is both straightforward, yet inviting

Focus on delivering valuable content

Think back to the last time you gave another business the satisfaction of completing their sales funnel. The best customer retention and acquisition tactic is to convince your leads that you’re interested in more than just their money.

To do this, you need to constantly feed them with valuable content that will interest them and help them trust you and your brand. One thing that would help you do this is to emphasize what value you bring them.

Provide stellar customer service

This goes beyond just responding to queries and concerns. In that regard, make sure you invest all your efforts into making sure your leads encounter as few issues as possible.

Furthermore, it’s a well-known fact that a good customer service team or persona will only benefit your business. Think about it—no matter how inconvenient the experience is, you’re more likely to be satiated by someone who is nice, forthcoming, and helpful.

Make sure you keep an iron tight grip on your customers and leads by looking for customer service representatives that have the best interests of your business in mind. Otherwise, you might end up with unhappy customers who will switch to other brands instead.

Invest in engagement

Engagement goes both ways. If you don’t interact with your viewers, then don’t expect them to take a second look unless you’re a viral celebrity.

If you’re on any social media platform, you’ll know that the easiest and fastest way of growing your organic engagement is by interacting with other accounts as well as your followers.

Conclusion

To wrap things up, make sure you keep an eye on your customer lifetime value because it will not only help you save money in the long run, but will be one of the key factors that will affect the success of your business.

Moreover, your customer lifetime value average is one of the easiest ways to predict your profits in the future. This way, you can invest more of your time into avenues that your leads and customer base actually respond to.

Want to optimize your CLV, let HC Funnels help you today! We are marketing specialists with a proven record of delivering quality results in customer lifetime values. Book your FREE consultation with the HC Funnels expert team today!