What is customer lifetime value? How to increase?

The amount of time and money a customer spends on a business or brand is undoubtedly a factor that helps in determining the success and growth of different companies. In the current times where most of the businesses are in the e-commerce platforms, CLV or the customer lifetime value has started to play a vital role. When it comes to running a business, all you have to do is keep in mind the value that a customer gives over the course of their relationship with you. You may begin to identify the significant drivers of CLV by studying the customer experience and measuring feedback at all crucial touchpoints. CLV marketing is a valuable statistic for recognizing early attrition indicators when you have a multi-year engagement with a client.

What is Customer Lifetime Value?

Client lifetime value (CLV) refers to the total amount a customer is likely to spend on your products/services over the course of their lifetime. This is an essential number to understand since it helps you decide how much money to spend on attracting new consumers and keeping existing ones. A company may create brand loyalty by focusing on maintaining existing clients. In the long run, this brand loyalty will raise the CLV. A customer loyalty program is all that is required of a business. Its primary goal is to increase a company’s average customer lifetime value (CLV).

It is simpler to compute CLV when data from all sectors of an organization is combined. Steps to determine the CLV of a company include determining the touchpoints at which the consumer adds value, creating a customer journey by combining records, tracking the income of the business at each touchpoint, and adding it up throughout the course of a customer’s lifetime.

Businesses can calculate the CLV by using the customer lifetime value formula. The formula of CLV is the product of the average value of a transaction, the number of times the client will buy each year, and the average customer lifespan (in years).

This can be represented as -> 

CLV = Average value of transaction x Number of times customer would purchase every year x Average customer lifespan

For example, Amazon Prime customers spend more than double on purchasing products from Amazon as compared to non-Prime customers. Hence Amazon focusses significantly on Prime members.  Amazon has calculated the average customer lifetime value of a Prime customer as US$ 2,283 as compared to US$916 for non-Prime customers.

How to increase CLV?

Putting your efforts, time, and money into increasing CLV is surely beneficial as high values of CLV determine how well the business is booming. Given below are different ways to improve your CLV value. 

Make efforts to improve the customer experience

Every interaction between a consumer and a brand, including shop visits, contact center inquiries, sales, product use, and even their exposure to advertising and social media, is considered customer experience. Improving the customer experience is a company-wide initiative that is frequently handled with the help of a customer experience management program. This management program provides a method of viewing, listening, and creating adjustments that result in a long-term improvement in how consumers feel and their propensity to remain loyal.

Refine the onboarding procedure

Onboarding is the one process in CLV marketing on which you should focus all of your efforts to secure long-term business growth when it comes to customer success. It’s critical to create a planned onboarding process that will inspire new users to return for more, increasing their lifetime value to your firm. Depending on the industry, client demands, or desired goals, the procedure may change. Making onboarding as quick and straightforward as possible is the easiest and most critical thing that most firms should do. This may be accomplished by using walkthrough instructions, interactive how-to videos, wrapped tutorials, and other information to make the process easier for clients to complete.

Develop a customer loyalty program

A loyalty program encourages repeat business by providing discounts or other perks. It could be in the form of a loyalty card or app or a points system that customers earn when they shop. A loyalty program, although not a panacea for client retention, may provide excellent benefits when properly developed and implemented. Loyalty schemes could result in upto 18% higher revenues since your customers increase purchasing frequency and quantity for maximizing their loyalty points. 

Recognize and reward your top customers

You must already have some ideas about which customers are likely to have the highest CLV once your customer experience management program is up and running. Targeted marketing and special incentives that recognize their loyalty can help you cultivate your connections with these individuals or groups. Free expedited shipment, top-tier loyalty club advantages, or access to exclusive or pre-release items and services are all possibilities. Implementing a rewards program enabled British cosmetics and skincare company Revolution Beauty to increase average order value (AOV) by an impressive 44% which resulted in customer lifetime value going up by a whopping 378%.

Provide customized upselling 

It’s considerably easier to sell to a consumer who already knows you and has made a purchase from you than it is to convert an utterly new prospect in many sectors. Upselling and cross-selling are two ways to deliver extra value to an existing consumer. When you suggest a more expensive product, add-on, or upgrade to a consumer, you’re upselling them on their purchase. Cross-selling encourages clients to buy a product that is similar or related to their current purchase. Both selling strategies allow you to provide customized recommendations and appeal to your customers’ interests. This is a fantastic way to get people to browse your site, find new things, and make purchases.

Deliver multichannel customer support

Customers can have different choices for how they interact with you. Therefore your support channels should match that. Rather than merely delivering what you believe your customers would want, do some research to find out which channels they prefer. To provide an excellent customer experience with omnichannel support, get consumer feedback on self-service alternatives and frontline encounters. Incidentally, customers are willing to spend 17% more on a company that provides excellent customer service.

Use the power of social media

Not only is social media becoming more vital for customer connection, but it is also becoming essential for customers to obtain information about your brand and public image. Customers’ opinions of your brand will be influenced in the future if they believe your social media responses to an enquiry or issue aren’t authentic, rapid, detailed, or compassionate enough. Be sure to incorporate social media mentions and reactions into your customer experience plan.

If you are interested in having a career where you deal with CLV and its related topics, you can opt for the PG Programme in Management course offered by IMT Ghaziabad in collaboration with upGrad. This course provides you with an opportunity to learn management from one of the top B-schools in India, get alumni status from IMT Ghaziabad, career assistance from upGrad among other benefits

Conclusion:

Focusing on acquiring and maintaining long-term clients who will become advocates for you, as well as repeat purchases, can help you establish a more lucrative and successful firm. Customers that are valued will help your revenue to thrive. It’s all about showing them how important they are to your company by asking for feedback and acting on it, by providing what they exactly need, even if they don’t realize they need it yet, and the utmost convenience, as well as providing top-notch support and an incredibly personalized customer experience.

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