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TADA Marketing & Customer Retention Blog

2 min read

What is Customer Lifetime Value and How to Improve It

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Customer Lifetime Value

Customers are valuable in every business. But do you know that some customers may be more valuable than others? This measure is also known as the Customer Lifetime Value (CLV), a crucial value for your business to look into.

What is CLV?

Customer lifetime value is the estimated total revenue that you can expect from a customer the entire time the customer does business with you. CLV can be calculated with a simple formula:

CLV = average value of a purchase X number of times the customer will buy each year X average length of the customer relationship (in years)

(The good news is, your customers’ value of purchase and visit frequency data are easily obtainable from our dashboard analytics!).

CLV is a powerful measure to calculate. It gives you an idea of how much you should be investing in a relationship with a customer. It also helps you decide the treatment you should be giving to your different customers.

How to improve CLV?

What should you do when your CLV is low? All hope is not lost, because CLV is not a fixed value, and can be increased! Check out these strategies your business can do to improve CLV.

  1. Upsell and cross-sell
    One of the data you need for calculating CLV is average value of purchase. The concept is really simple: the more customers purchase, the higher their CLV will be. You can try upselling and cross-selling to encourage customers to increase their basket size. Upselling means selling a specific product or service at a more expensive version, while cross-selling is selling a similar, complementary product or service to the one your customers are looking to buy. Some strategies to do this are offering bundling products, complementary products, or free shipping with minimum spend.

  2. Have omni-channel presence
    The next important number in calculating CLV is customer visits frequency. Naturally, we want customers to visit and buy from us more frequently so that they will have higher CLV. To be a business that thrives in this digital age, it’s important to be active in omni-channel, both offline and online. With omni-channel presence, you can encourage customers who are willing to buy from you but are wary to visit physical stores to purchase online. This way, you are opening up more ways for customers to do business with you.

  3. Consider subscription model
    A solution worth looking into if your CLV is low is the subscription model. Just think of it this way, once customers signed up for your subscription plan, you greatly reduce churn because they will be committed to your business for a longer period of time. Customers will want to make the most out of the money they have spent upfront in your business, so they will most likely visit often and spend more to enjoy the full benefits of their subscription package. In turn, they’ll have higher CLV and gain the habit of buying from your brand.

Businesses are often fixated on numbers such as sales and ROI to measure their success, but Customer Lifetime Value is a number that can’t be overlooked. Retain your customers better to lock in their loyalty and keep them doing business with you in the long term. Contact us and let’s discuss how we can help!

Yunny Yunita
By Yunny Yunita

A strategic planner with a passion for brand marketing and the written words. In her free time, she enjoys travelling, laughing, relaxing with a book near a scenic place, or better yet, all three at once!

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