The Ultimate Guide to improving your Customer Lifetime Value

Tanuj Diwan
Nov 07, 2019

5 mins read

Tanuj Diwan

Customer Lifetime Value (CLV) is the measurement of a customer’s value to the company over a long time span, usually, their lifetime.

Why is it important?

Because studies say that keeping your existing customers costs you less than onboarding a new customer. Sadly, not many marketers are aware of this which means that they effectively lose long-term customers- in other words, they have a leaky bucket.

In fact, a 2018 study said that only 34% of marketers knew what CLV is or had any idea about its importance.

Calculating CLV

Your business spends thousands of dollars on paid ads, hiring writers to help in creating evergreen content to ensure there is a litany of customers from different channels.

Did you ever calculate how much each customer is worth to your company? Understanding this single metric can help you take a lot of business decisions that will affect your business.

The simplest way to arrive at your CLV is to take the revenue the customer is expected to bring over his/her lifetime and minus it with the cost of acquiring them.

Let’s assume that a customer brings in $10,000 over his/her lifetime to your company and the cost of acquiring the customer (CAC) is $2,000,

then your CLV= Revenue-CAC, which is $8,000.

This metric gives you ample clarity on how well your marketing costs can be justified. It should be a priority to keep CLV as high as possible.

How to improve CLV?

Increasing the CLV of your business will have a dramatic effect on your business. It would imply better customer service, improved business systems in place, better branding, measuring feedback at all touchpoints, and more.

How to improve Customer Lifetime Value

Here are three ways for you to improve CLV.

  • Increasing Customer Satisfaction.
  • Customer Retention Strategy
  • Increasing Loyalty

1. Increasing Customer Satisfaction

Happy and satisfied customers will spend more on your business.

Your customers don’t expect the moon from you, all they want is to get the service you promised or your product working the way it was supposed to. Having a defined set of processes in keeping your customers satisfied makes it easy to implement them. Embrace taking the feedback of your customers.

There are tools to measure customer satisfaction- CSAT, NPS and CES.

The Customer Satisfaction Score (CSAT) helps you measure your customer’s satisfaction with your product or service.

Net Promoter Score (NPS) measures customer loyalty. Here is The Ultimate Guide to Net Promoter Score®

Customer Effort Score (CES) asks your customer how much effort you had to put during your interaction with them at each touchpoint. CES works on the theory that lesser the effort the customer has to take when dealing with you, higher the satisfaction. For example, if your customer has to take a lot of effort in getting to talk to your customer service agent, you have failed. Make it easy for them to deal with you.

These three metrics different aspects of customer service, these are worth including in your KPIs.

2. Customer Retention Strategy

It is a business strategy where your objective is to retain as many customers as possible. Rewards for big spenders and repeat purchases would be a good thing to include in your customer retention strategy. Many businesses are known to be unresponsive in resolving issues.

The feedback that you get from your customers is gold. It will improve your business while giving you an opportunity to further strengthen your relationship with your customer. If you are on top of your customer’s issues, they would be more than happy to give you their business repeatedly.

When you recieve customer feedback from your survey, it is important that you close the feedback loop. In fact, have a sequence of steps that you can follow to ensure that the feedback loop is closed for each customer.

For example, if a customer says that their experience during the checkout process was not good, then do the following:

  1. Apologize to the customer
  2. Find out the issue,
  3. Solve it on priority,
  4. Inform them that they will not have a problem during the checkout process anymore, and
  5. Thank them for doing business with you.

When customers know that their feedback is valued, they would be more open with you and their leaving to a competitor will be less of a headache to you. Why would your customer move their business elsewhere when you keep them satisfied and take care of their needs?

3. Increasing Customer Loyalty

Having brand advocates is a sign of customers who are loyal to you. They also help you get newer clients for your business through referrals. Brands that have loyal customers will see CLV metircs that are higher than normal.

Implement a loyalty program as an incentive for customers to make repeat purchases. 87% of shoppers in a study said that they want brands to have loyalty programs while 54% of them said that they would do more business with a company that has loyalty points.

Conclusion

CLV is one metric that you need to keep a close eye on, it helps you take notice of many aspects of your business. Working on improving the CLV rate will positively affect your business.

It is desirable to add new customers every day, but if your existing customers are slowly moving out, you are doing yourself a disservice by letting them go. You might want to work towards keeping your existing customers satisfied to decrease the churn. Calculating your CLV needs to be a regular process and a part of your DNA.

Customer Retention issue

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