Knowing your customers’ value and how much they bring back to your business is essential in understanding where your business stands and what it can do to increase revenue and sales. In this post, you will learn how to calculate customer lifetime value (CLV) and how to improve your business’ CLV by increasing customer retention and loyalty.
What is Customer Lifetime Value (CLV)?
Customer lifetime value (CLV) is a customer success metric that determines how much net profit your business is able to make from one customer over time. The CLV can tell you the dollar worth associated with a long-lasting relationship with any customer. This is a metric used to determine the value of your customers and how much money they bring to your business. This metric is key when it comes to bringing aboard new customers and deciding how much to spend on existing customers.
Why Measure CLV?
Going by this definition, the higher your business’ CLV, the more revenue each customer brings into your business. Therefore, with each customer’s value increasing, your sales and marketing teams can afford to take on new customers. In other words, your business can spend more on attracting new customers and retaining existing ones. And this is simply because each customer is valuable and brings more to your business. CLV is important because:
- Acquiring new customers is expensive and difficult, at times
- Loyal and recurring clients will be your best promoters
- Current customers can help your business growth
So, calculating CLV can give you insights into the quality of your customers and what your business can do to increase revenue and sales.
Calculating your customer lifetime value can be tricky. Understanding the core components will prove helpful. We break this down into easy-to-follow steps. Calculate your CLV scores by following the below steps:
Step 1. Calculate Average Purchase Value
Value of each purchase.
Average Purchase Value = Total Revenue / Number of Orders
Step 2. Calculate Average Purchase Frequency
Frequency of each purchase.
Average Purchase Frequency = Number of Purchases / Number of Customers
Step 3: Calculate Average Customer’s Value
Value of a customer.
Average Customer’s Value = Average Purchase Value / Average Purchase Frequency
Step 4. Calculate Average Customer’s Lifetime Span
Number of years that each customer visits or uses your service.
Average Customer’s Lifetime Span = Sum of Customer Lifespans / Number of Customers
Step 5. Calculate Customer’s Lifetime Value (CLV)
Your Business’ CLV score
Customer’s Lifetime Value = Customer Value (step 3) x Average Customer Lifespan (step 4)
9 CX Strategies to Increase Customer Lifetime Value (CLV)
When thinking of ways to improve customer lifetime value, there are three main factors to consider:
- Average Transaction Value
- Number of Repeat Sales
- Average Customer Retention Rate
By influencing or increasing these factors, your business’ CLV and customer experience (CX) will improve. So, what can you do to better these numbers?
1. Conduct Surveys and Ask Questions
One way to improve your product or service is by increasing the number of repeat customers and subscribers. To do this, you need to identify what keeps customers coming back and any significant deal breakers. The best way to learn more about what your customers like and expect is by asking them. Conduct surveys, ask questions, and collect voice of customer data. Learn more about your customers so you can serve them better and convert more into recurring customers.
2. Enhance Customer Service and Customer Success
According to a study conducted by PwC, 32% of customers will end their relationship with a business after a bad experience. And so, this goes without saying but improving your customer support and customer success services can go a long way in retaining customers and making them advocates for your brand.
Consider investing in omnichannel and multichannel customer support. By increasing the number of channels that customers can use to connect with you, you can appeal to a wider customer base and offer more responsive service.
You may even find it useful to utilize self-service options such as knowledge bases and support centers, automate IVR services, chatbots, trouble tickets, and more. Self-service options give users the ability to solve their problems themselves and on their own time. Read our post about customer service trends to determine where your business is lacking.
3. Design Relevant and Easy-to-Use Products and Services
How relevant your business and products are can greatly impact how prospects view and interact with your services. Stay relevant, discuss current issues, and offer up-to-date information and features. If customers find more relevant usage elsewhere, they will go to a competitor without hesitation.
4. Develop a Customer-First Strategy
To enhance CX for your business, you need to create a customer-first strategy. Such a strategy requires your sales and marketing teams to take time to understand the customer, their needs, pain points, and preferences. And then develop a strategy that supports them and their needs.
5. Consider Usability Testing
Usability testing is a kind of market research. In usability testing, your marketing and services teams observe how users interact with your product, software, or service. You can test specific processes (sign-up, purchasing stage, etc.) or the entire system. Usability testing lets you identify areas that need improvement; specifically what processes and features are not clear or easy-to-use. Then, you can create better products and software that make customers more comfortable and less confused.
6. Cross-Sell and Up-Sell
Most sales teams already know that cross-selling and up-selling can greatly improve customer retention. Offering additional services and add-on features is a good way to reduce cart abandonment and build customer loyalty. Furthermore, offering products and services that are relevant to your customers will make a great difference. Customers appreciate personalization and customized recommendations and see them as an effort to really help improve their lives.
7. Create Valuable and Engaging Content
Keep your customers engaged by creating and sharing valuable and informative content. Utilize your blog page, emails, and social media platforms to educate and inform your customers and also establish your business as a trustworthy and credible one. Show readers that your employees know the industry and are developing first-class products.
8. Consider Loyalty Programs
Invest in customer loyalty programs to keep your customers coming back for more. Discounts, member-only promotions, etc., will help retain valuable customers. Treating them with special care and effort will give them more reasons to stay.
9. Continue to Delight Your Customers
Lastly, don’t stop delighting your customers once you lock them down. Keep them happy. Surprise them with small gestures; these can be holiday greetings, birthday cards, gift cards, etc. These little gestures can go a long way in securing customer loyalty.
After All, It’s All About Customer Relationships
Your customers drive your business’ growth. Without them, your business can easily fall behind and into the shadows. Try these CX strategies to improve the way customers interact with your business and give them a reason to come back for more. Competition is everywhere and so it’s up to you to make your business stand out. How far are you willing to go?
Learn more about how Global Call Forwarding’s communication features can help your business communicate better. Reach out to us today to learn more!