CLV is a basic indicator, which shows the extent of how beneficial a customer is to the enterprise.
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Is CLV important?
Interacting with current clients is less costly than obtaining new ones, so enhancing the value of actual customers is crucial for the company. Basically, you have to be aware of the worth that a customer provides for your business at all stages of your mutual relations. Below I’ll provide some details about the CLV calculation, but if you simply need to integrate the CLV analysis in your business process, get in touch with professional software developers.
Calculating customer lifetime value
Standard CLV formula:
Profit from a single customer per year * Length of the interaction – Total cost of attracting the customer = CLV
This equation may be applied when numbers are not likely to change on a yearly basis.
Predictive CLV could also be measured. It demonstrates how long the relationship between the customer and the company is expected to last and the value it will have at the end.
However, profit can change regularly. In that case, another, more detailed, traditional CLV formula can be used.
CLV = Gross contributions for each customer * ( Retention rate per year/ 1 + Discount rate per year – Retention rate per year)
GC (gross contributions) – the net income a company would make from one customer.
Retention rage – the number (percentage) of clients who remain with the business during an established length of time.
Discount rate – inflation percentage (normally estimated at 10%).
How much do you pay for your customers?
CLV has a twin sister, so to speak – CAC (customer acquisition cost).
It shows the amount a company would invest to draw new clients via methods such as discounts, sales and so on.
Any business should intently watch their CLV – CAC balance. If the latter index is bigger than the former, the company in question would start to lose money unless it cuts back its expenses on their means of attracting clients.
Cost to Serve is another component of customer experience. It revolves around all steps that get the product to the client. Namely, it’s customer support costs, logistics.
Analyzing these metrics is the only way to gain insight into what your customers are bringing back to the business.
How to better CLV numeric value?
CLV means creating long-lasting affiliations with your clients, which is vital for any business endeavor. Here are a few ways to improve your figures:
Address the customer experience
CE consists of every interaction between a customer and a company, whether it’s buying a product, using it or sharing the product on social media. Introduce the experience management program that helps improve the client-company relationship. This procedure involves collecting various feedback from customers and estimating their disposition towards the company in the long term.
Make clients loyal
Everybody likes discounts and benefits. Think of a way to integrate them into your business plan. It can be a special loyalty card, where customers collect points, or a 1 for 2 system. While that’s not a wholesome solution, a loyalty program does result in retaining clients.
Identify the finest customers
Reward individuals who turn out to be most profitable. Raise their loyalty even more by introducing rare advantages such as free shipping, for example.
Make the dissatisfied happy
It’s an important step to reinforce customers’ adherence. Should any clients be disappointed, actively listen to what they say and improve this aspect, before the conflict escalates any further.