Have you ever wondered what profit one customer brings and how to measure it? The customer lifetime value indicator comes to the rescue. By checking the customer's lifetime value, you will find out how much revenue one customer generates. In our article, we will explain the concept of customer lifetime value and give you tips on how to increase the long-term value of a customer.
Customer lifetime value (CLV) is, according to the definition, a measurement of customer value, which means the value of revenue that a customer can generate for a company during the entire duration of the partnership. In other words, customer lifetime value is the average amount of money that buyers plan to spend on products or services in a given company over the duration of the relationship. It is important to know how much a customer spends in a specific period in order to effectively measure the effectiveness of marketing activities.
By analyzing the entire customer relationship process, we can estimate whether a particular buyer has actually generated more profit for the company than the cost of acquiring them.
There are several methods for calculating customer lifetime value. Some of them may be uncomfortable because some CLV calculation models are quite complicated. Below, we present the standard formula that helps calculate the customer lifetime value.
Customer lifetime value = average order cost x average transaction frequency x retention period
Average order cost - this is the average value of a single purchase
Average transaction frequency - this is the average number of purchase frequencies made by a customer in a given period
Retention period - this is the period in which a customer remains active in the relationship with the brand, i.e., the number of years in which a customer makes purchases in a given company
We will illustrate this equation based on an example:
Let's assume that the average order value is 200 PLN, and the average transaction frequency is 3 orders per year. The average retention period is 3 years. Therefore, it is easy to calculate that the lifetime value of this customer is: 200 * 3 * 3 = 1800 PLN
Now that we know what the customer lifetime value indicator is and we know the formula that will help us calculate it, there is nothing left but to think about how to improve the value of a customer's life.
1. You never get a second chance to make a first impression
First of all, remember that the first impression is important not only in personal relationships. It also matters in customer interactions. To increase the long-term value of a customer, take care of personalizing your communications and make sure that users visiting your online store feel welcome. A good idea is a pop-up window informing about a discount for first-time customers.
2. Simplicity in purchases
Create a short purchase path. The fewer steps between product selection and transaction completion, the better. Avoid stretching the purchasing process. Do not add unnecessary fields requesting information that you do not need; customers are usually impatient.
3. Take care of the content
It is important to match the content to the target group. Consider who the pojedynczy customer is, and it will be easier for you to match the content you present in your brand communication. Additionally, ensure diversity in both message and form. Choose various communication channels; do not limit yourself to blog articles only, use video clips, collaborate with influencers, etc.
Take care of both your loyal lojalnych customers and new ones. Direct campaigns to loyal customers, prove to them that they are important to you with personalized offers or free samples.
For new customers, you can implement a loyalty program that will attract and retain potential customers. Clearly communicate the rewards for participating in the program - this will increase motivation to participate.
5. Build a community
By using mediów media, establish contact with your audience, which will also increase the lifetime value of the customer. Moreover, such actions will have a positive impact on customer loyalty. If you properly match the content and social media channels, potential customers will be more likely to stay with you longer and closely follow your company's profiles on social media.
6. Don't end the relationship too soon
An important factor in maximizing customer lifetime value is obsługa service. Take care of the customer throughout the entire duration of the relationship, not just until the purchase of a particular product. Ask the customer for feedback. You can use tools that automate this process, such as the Rating Captain application. Make sure the package has arrived and the customer is satisfied. This will increase trust and attract a group of returning customers.