Business Analysis Metrics: Customer Lifetime Value
In this blog, we discuss the following:
What is Customer Lifetime Value (CLV)?
Steps on How to Calculate CLV?
As a business owner, you should be able to answer the question: “which customer spends the most at your business?”. If you are hesitating at that question, it means you are not reviewing one of the important metrics to your business, the customer lifetime value (CLV). The truth is that customer lifetime value is a crucial metric that can be used to drive decisions around sales, marketing, product development, and customer support. Grab your free CLV template today to stay on top of your business's metrics.
What is Customer Lifetime Value (CLV)?
Customer lifetime value is a KPI metric that measures how much profit your customers will generate during their relationship with your company. Not only that, but it also shows how healthy your customer base is and how likely your company is to grow in the future. This KPI is essential to identifying the most profitable type of customer for your business and those that will bring more results in the future.
CLV can aid in designing loyalty programs and promotions that benefit those customers who bring growth to your business. This way, your investments will have more focus and higher returns in the future. In turn, benefits in targeting your ideal audience and customers. Here's more on how to find your net promoter score (NPS), a strategy where you can calculate how loyal your customers are to your brand.
From another perspective, we could say that CLV measures how successful your client relationship expertise is. Therefore, this would be one of the first metrics you would need to implement to further analyze. Knowing the health of your relationships gives you an indication of what you can expect for revenue and costs.
How to Calculate CLV?
Download the Customer Lifetime Value template for free today!
If you are not using the template here’s how to do it. In order to calculate the CLV, we need a few other components:
CLV = Customer Value * Average Customer Lifespan
where Customer Value = Average Purchase Value * Average Number of Purchases
Not only does the customer lifetime value tell us which are the top customers, but also the most loyal that have remained and stood by the business for a long time. So, if you are still unsure of the answer to which customer or client spends the most at your business, then head over to the free CLV template. Remember, that it is easier to sell to an existing customer, rather than to obtain a new one. In the end, your business’s goal is to continue to have customers purchase from the company as long as they can in order to have an outstanding customer lifetime value.