Customer lifetime value, or CLV, gives insight into the most profitable type of customer and what marketing tactics they respond well to. Focusing on CLV improves retention rates, which increases profits without raising acquisition costs.
How to calculate customer lifetime value
There are different methods to calculate CLV, but a good, simple equation to get you started is to first multiply average sale value multiplied by average purchase frequency. Then, multiply that number by how long a customer typically stays with your company.
The resulting number will be the average gross revenue that your customers bring to your company over their lifetime.
How to improve customer lifetime value
1. Improve customer support
Poor customer support can erode trust in your brand. Having a training process in place helps reinforce methods and procedures designed to deliver consistent customer service.
You can improve the process on an ongoing basis by asking your sales staff what they need to make their job easier, as well as continuously evaluating current levels of support. Do they need more training or resources to reference? Would an extra support team member help them keep up with demand?
Work to make the process as efficient as possible and take note of any recurring questions or issues so you can fix them before they happen again.
2. Establish deeper levels of engagement
When making that first sale, ask the customer what their business is trying to achieve and how they define success. If you have a CRM system, make sure you add these insights to their profile. Then, think of ways to help them achieve their goals.
Consider introducing things like service upgrades or new products that will help your customers meet their goals, and follow their progress to make sure your recommendations were effective. work with them closely so they get the most out of it.
Once a customer hits a milestone, celebrate with them. Sending a congratulatory note or sharing their story through your social media or website connects them to you on a personal level and helps spread the word.
3. Emphasize loyalty efforts
One of the most obvious ways to improve customer lifetime value is to improve loyalty. The longer they stay with your company, the more they will spend overall.
To achieve this, roll out loyalty programs that earn frequent customer discounts, free trials or service upgrades. Stay in contact between purchases or use surveys to make sure they are enjoying your products. The customer will feel more important to your brand and will be more likely to stay.
For example, CAT’s rewards programs lets customers earn points with each purchase, which can be traded for merchandise, electronic gift cards or CAT Prepaid Credit Certificates. This program entices customers to spend more and encourages loyalty.
4. Never stop testing
Customer needs and wants continuously change, and your marketing should change with them. Keep track of how many qualified leads your marketing strategy generates and how many of those leads ultimately convert to customers.
To learn what works best, conduct A/B testing on ads and campaigns, send out surveys to current customers and learn from marketing strategies from other companies that have proven successful.
For example, if a competitor has been gaining a lot of attention with a video series about construction equipment, maybe it’s a sign you should step up efforts and invest in your own video marketing.
5. Keep adding value
Make sure your customers know that they get the most benefits with your company. Continuously publish and remind customers of content that helps them with everything related to your products, from a guide to the basics to tips for mastering each added feature.
Upgrading and adding new offerings also means you grow and change along with your customer base and industry, so you never become outdated.
For example, HubSpot provides a knowledge base for all customers to learn their marketing automation software to the fullest.
Customer lifetime value is tied to several important factors, such as retention rates and company revenue. To improve CLV, and your business growth, encourage loyalty and position yourself as a brand that grows with your customers.