Understanding how to create a lasting relationship with your customers is a key part of running and growing your business. A key step is to understand and evaluate the Customer Lifetime Value (CLV) which represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime.
Customer lifetime value is a crucial metric that quantifies the long-term value a customer brings to a business throughout their relationship. It takes into account not only the initial purchase a customer makes but also their potential for repeat purchases, referrals, and brand loyalty.
Customer lifetime value helps in identifying high-value customers, predicting future revenue, and ultimately driving profitability. By calculating customer lifetime value, businesses can make informed decisions on how to allocate resources, tailor their marketing strategies, and improve customer retention.
Calculating customer lifetime value serves as a valuable tool to help businesses prioritize their resources and provide exceptional customer experiences that lead to long-lasting relationships.
By focusing on increasing customer lifetime value, businesses gain insights into the purchasing behaviors and preferences of their customers. This empowers them to better personalize their offerings and create targeted marketing campaigns. A more personalized approach not only enhances the overall customer experience but also fosters a sense of loyalty and trust between the brand and its customers.
In addition, understanding customer lifetime value enables businesses to identify opportunities for upselling and cross-selling, thereby increasing the average order value and maximizing revenue potential. By nurturing relationships with these high-value customers and providing exceptional customer service, businesses can create brand advocates who are more likely to refer new customers, further expanding their customer base and driving growth.
When faced with competitive markets and rising customer acquisition costs, focusing on customer lifetime value is essential for sustainable business success. Businesses can create a loyal customer base that contributes significantly to their bottom line and sets them apart from competitors by prioritizing long-term customer relationships and consistently delivering value.
The method for determining customer lifetime value is relatively straightforward:
Customer lifetime value is the average value of a purchase X number of times the customer will buy from you each year X the average length of the customer relationship (in years).
An example of this would be:
A customer who lives alone and goes grocery shopping every week:
$75 per week X 52 weeks in a year X 3 years= $11,700
A customer who lives with their significant other and goes grocery shopping every week:
$175 per week X 52 weeks in a year X 3 years= $27,300
Based on the two different customer lifetime values for each customer, you should be investing in the second shopper.
There are 4 main takeaways that you gain when calculating your customer lifetime value and trying to assess where to invest your company’s money:
While knowing how to calculate customer lifetime value is important, it is also crucial to understand how to continue to build and grow a customer's CLV. Here are four ways companies can grow customer lifetime value among their different customer segments.
There's a real connection between customer service and customer loyalty. When customers feel valued, heard, and supported, they are more likely to return to a business for future purchases.
Customer service shouldn't just end once a purchase is complete or an issue is solved; brands can provide great customer service at other interactions, such as during an onboarding period or at regular check-ins to make sure the customer is still happy with their purchase. Brands can also connect with customers through social media posts or newsletters to let them know about new deals or rewards offered that they might be interested in.
By prioritizing customer satisfaction and going the extra mile to meet their needs, businesses can create a lasting bond that keeps customers coming back time and time again.
Customer loyalty and rewards programs help businesses attract and retain customers by providing valuable incentives and benefits that encourage them to become repeat customers. Loyalty programs allow businesses to utilize tools such as receipt validation and digital promotions to allow customers to earn rewards for their purchases and help them feel appreciated for their patronage. Loyalty programs foster trust and security between brands and customers, which ultimately leads to better customer lifetime value.
One way to increase customer lifetime value is to understand what factors are causing customer churn. If issues are preventing your consumers from returning then it is important to identify those issues and find solutions.
Customer feedback is a valuable way to hone in and solve specific problems your customers experience. Using surveys or general feedback questionnaires can help reveal what needs to be fixed and even raise ideas for other improvements or enhancements customers want. Allowing your customers to tell you what they believe works and what needs some improvement is a way to strengthen customer trust and build a better relationship. Seeing a company actively listening to and utilizing customer feedback can do wonders for deterring customers from taking their business to other companies.
It is important to show long-time customers that they are as valued by your company as new customers. You can help ensure these relationships continue to flourish by sending customer communications that are engaging and relevant to their interests.
Incorporating engaging content such as exclusive offers, sneak peeks, or personalized recommendations can keep them excited and connected to your brand. Another way to show appreciation for long-time customers is by sending them personalized thank-you notes or small gifts to express your gratitude for their loyalty.
Remember, investing in these relationships goes beyond transactions; it's about building a community of loyal supporters who genuinely care about your brand's success. By keeping the lines of communication open and showing that their business is valued, you can strengthen the bond between your company and your long-time customers, ensuring their continued loyalty and support.
Now that you have a deeper understanding of customer lifetime value, how will you move forward? Brandmovers can help! Get in touch with us today to see how we can help you cultivate deeper and long-lasting relationships with your customers.