What Is Customer Lifetime Value and Why Does It Matter?

|by demi@wiredplus.com

Often shortened to CLV or LTV, customer lifetime value is one of the most important metrics that a business can keep their eye on.

Which do you value more – a new customer, or a repeat customer?

Statistics say that, if you want to attract a new customer to your business, it will cost you five times more than keeping an existing one.

Treating your current customers right is the key to building and growing your business. As a marketer, it’s essential to follow the best practices to ensure that you’re engaging with your existing customers in a positive way.

Knowing how many customers you have is all well and good, but how often are they making a purchase? And how long do they remain a customer for?

What is customer lifetime value?

Simply put, customer lifetime value is the value that a customer contributes over the entirety of their relationship with your business.

It’s a really important metric for your business. It can measure how much profit you expect to make from a customer over their time with you. It lets you know who’s in it for the long haul.

The longer you can keep a customer, the greater their customer lifetime value becomes.

Knowing the value of a customer will give you an idea of how much you should be willing to spend on keeping that customer for your business.

You can use this information to help you make important decisions about your marketing strategies. You’ll be able to better target your most valuable customers with more focused, personalised campaigns, meaning you can generate more future sales.

Don’t get customer lifetime value and net promoter score mixed up. Unlike NPS, customer lifetime value can be tangibly linked to revenue.

How to measure customer lifetime value

Customer lifetime value will influence most of your business decisions, but especially your marketing spend.

It will provide you with meaningful insights into how you plan your future campaigns, and improve your future customer interactions.

You don’t need to get bogged down with complicated calculations.

The simplest way to work out the customer lifetime value is:

Average value of purchase x Number of purchases in a year x Average length of customer relationship 

Why email marketing is important for customer lifetime value

When it comes to your marketing efforts, you probably pay a lot of attention to your campaign metrics. While these are really important for knowing for successful your marketing is, you can miss out on the bigger picture.

Customer lifetime value isn’t just about your next conversion. It teaches you to look at the relationship with your audience as a long-term strategy.

When you’re focused on the value of your different customers, you’re focused on growing a loyal audience and catering to their needs.

Email marketing is one of the best ways to get loads of detailed information about your customers.

Your email list is one of your greatest sources of data. You can use it to gain a better understanding of who your customers are and what it is they want, and ultimately improve your customer lifetime value.

Save your best efforts for your best customers

Increasing the value of your existing customers is a great way to drive growth.

If you’re losing customers or they’re only making one-off purchases, it’s a good idea to work on your post-purchase marketing.

Remember, your existing customers matter too!

In the end, it’s the customer lifetime value that will determine the ultimate success of your company.

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