Understanding Customer Lifetime Value

 
Customer lifetime value (CLV) is an important metric for companies to continuously monitor. Monitoring CLV helps foster fruitful, long-term relationships with your top consumers—and avoid wasting time, energy and marketing dollars on fleeting or indifferent individuals. Focusing on your highest-value consumers is integral to driving your company’s overall growth and success.

In this blog we’ll cover what your business needs to know about CLV, including how to measure it and strategies for optimizing profitability.

What Is Customer Lifetime Value?

Customer lifetime value refers to the total value a customer brings to a business over the entire relationship, from the first to the last transaction. This metric quantifies the estimated revenue an individual will likely generate for your company. CLV takes into account:

• Purchase history
• Purchase frequency
• Average order value
• Referrals to other consumers

Any contributions to your company’s revenue stream will impact the shopper’s lifetime value.

CLV applies to several industries, including retail, telecommunications, financial services (insurance), utilities and other industries that use subscription billing.

The Importance of Monitoring CLV

Customer lifetime value modeling and monitoring are essential for businesses looking to boost profits by building meaningful relationships with their most loyal customers. Investing in strategies to enhance relationships with your highest-value customers boosts revenue and inspires long-term loyalty to your products or services.

Here are five key reasons why tracking CLV benefits your company and its operations.
 

Improves Customer Retention

CLV is closely connected to customer retention. This metric can guide your business and help with:

• Identifying which at-risk customers should receive retention efforts
• Implementing targeted engagement strategies
• Improving customer satisfaction

Your business can save money by investing in retaining its existing customer base rather than spending time, energy and money on acquiring new customers. Tracking CLV helps your team understand which high-value relationships to focus on to enhance retention.
 

Fosters Strategic Decision-Making

Monitoring CLV informs strategic decision making regarding advantageous customer acquisition, retention and engagement initiatives. Calculating CLV gives your business a competitive edge, as it enables your team to prioritize high-value customers who will have the greatest impact on your bottom line.

CLV data makes it possible to make informed, strategic decisions that maximize long-term profitability.
 

Facilitates Revenue Forecasting and Future Planning

Calculating and tracking CLV are essential steps for future planning. Your company can tap this metric to observe customer lifecycles and accurately predict financial performance.

Knowing CLV also helps your company optimize its resource allocation, helping you anticipate and meet customers’ needs and nurture your company’s most valuable customer relationships.
 

Enables Better Customer Segmentation

A huge advantage of understanding CLV is being able to segment your customer base. Categorizing customers allows you to tailor your marketing, product development and service approaches to resonate with individuals based on their specific requirements and qualities.

Customer segmentation can provide many benefits for your business, including greater loyalty and resource utilization.
 

Enables Evaluation of Long-Term Performance

CLV is an important key performance indicator for different initiatives, like your marketing campaigns or customer service protocols. You can gauge the effectiveness of these strategies by measuring their impact on customer lifetime value.

Use CLV calculations to inform continuous improvement strategies and find more effective ways to foster lasting, profitable relationships with your highest-value consumers.

Calculating Customer Lifetime Value

At the most basic level, your business can multiply the following values to calculate CLV:

• Average order value: How much money an individual typically spends per purchase from your brand
• Purchase frequency rate: The number of times a shopper invests in your goods or services per year
• Average customer lifetime: The amount of time a consumer spends as a loyal customer of your company

You can use different software-as-a-service (SaaS) platforms to collect and make sense of customer data. The right customer lifetime value SaaS tools can make this calculation simple and more accurate.

Four Strategies to Increase CLV

Your business can inspire customers to spend more time and money with your brand, ultimately enhancing CLV and your bottom line. Implement these four best practices to increase customer lifetime value:
 

1. Leverage Data to Optimize Customer Experiences

Customer data is an incredible tool that can help your business boost CLV. Analyzing customer data provides extensive insights into preferences, trends and behavior. Your company can leverage data to personalize interactions and support better customer experience (CX) at every interaction with your business.

By improving CX, you increase the likelihood that a customer sticks with your brand, boosting their CLV.
 

2. Implement a Loyalty or Rewards Program

Because order frequency plays a major role in CLV, be sure to implement strategies that encourage customers to make repeat purchases and/or renew their contract. Implementing a loyalty or rewards program incentivizes customers to stay with your company (increasing average customer lifetime) and continue spending money at your business. You can extend exclusive discounts or perks to entice customers to sign up for your program, thank them for their business and keep them coming back for more.
 

3. Provide Exceptional Service

The importance of great customer service cannot be overstated. Your company can effectively boost customer satisfaction and retention by delivering the most helpful, convenient customer service.

Give your customer service representatives (CSRs) the resources they need—such as an agent desktop solution—to be highly responsive and helpful. Encourage your CSRs to go the extra mile for customers, as this inspires long-term loyalty and increases CLV.
 

4. Implement Upselling and Cross-Selling Strategies

Another way to enhance CLV is to take advantage of opportunities to upsell and cross-sell relevant offers to consumers.

Upselling involves suggesting a slightly more expensive or upgraded product or service to a customer who is already buying from your brand (e.g., “would you like to supersize that meal?”  or “would you like to switch to an unlimited data plan?”). Cross-selling is a tactic where you suggest a complementary or related product or service to go along with what the customer is purchasing (e.g., “would you like fries with your burger?” or “would you like to add a streaming package to your internet plan?”).

These four strategies help your business increase the average order value, purchase frequency rate, and/or average customer lifetime—and, therefore, CLV.

Enhance Customer Experiences and Boost CLV With CSG Xponent 

Enhancing customer experience is essential for boosting CLV. With a SaaS platform from CSG, your business gets the tools and insights it needs to build stronger customer relationships and drive greater loyalty.

CSG Xponent, our leading customer engagement platform, allows you to manage every facet of the customer journey. Xponent is a SaaS platform that combines journey analytics, digital communication and a decisioning engine to deliver the right messages at the right time to help customers accomplish a particular task. Xponent makes it simple to provide personalized, tailored experiences (and targeted offers) and deliver convenient, exceptional customer service that boosts customer satisfaction, loyalty and CLV. Our journey-as-a-service library and CX mapping tools help you foster more meaningful, profitable and longer-lasting customer relationships.