How Important Is It to Measure Customer Lifetime Value for Your Business

How Important Is It to Measure Customer Lifetime Value for Your Business

We have often referred to CLV or LTV (Customer Lifetime Value/Lifetime Value) as the most secluded key performance indicator, which is particularly difficult to handle as this metric is a forward-looking indicator which identifies both the customer’s upside potential along with customer centricity of a business, and can be a medium for finding a boost in customer retention, customer share, improvement in ROI and top-line revenue.

An Unexplored Business Development Opportunity

We are all aware that growing and retaining existing customers costs much less than acquiring fresh ones. However, for several reasons sales professionals often show an inclination for acquiring new customers and defy existing customers as they provide incremental sales as opposed to fresh customers which bring (first-time) big-ticket sales. 

Nevertheless, it is necessary for the management to recognize that incremental sales from existing customers may deliver lower value, but on the other hand brings higher margins per sales, increase customer share, and boost Customer Lifetime Value- a metrics that often fail to catch the attention of the sales teams but nevertheless is vitally important for the company.

Defining CLV (Customer Lifetime Value)

To start with MASB (Marketing Accountability Standards Board) defines CLV as the current value of the future cash flow attributed to the customer during their total relationship with a brand or a company.

The math behind Customer Lifetime Value looks like the following:

CLV= Profit in $* Customer Retention (%) / (1+ Product or Service Discount (%) - Customer Retention (%))

So if your business makes an average profit of $ 10,000 from the customers, and your customer retention is 80% and the discount rate is 20% your CLV is as follows:

Customer Lifetime Value= $10,000*80% / (1+20%-80%) =$8000/40%= $20,000

Moreover, an add-on factor when calculating CLV is referred value. Customer Lifetime Value should reflect the measurable benefit for all the existing customers those that have provided referrals which provided incremental sales.

Questions on Customer Lifetime Value

CLV defines the financial value of each customer in your CRM database and this information is capable of answering certain strategic questions and which can be applied to a number of use cases.

What is a lead worth?

When you have the right CLV and understand your organization’s lead-to-customer conversion rate you can easily measure what a lead is worth using easy to use CRM software and thereafter also calculate how much your business should be willing to spend for acquiring new leads.

In addition marketers those who fail to apprehend their businesses’ CLV mostly either overspend or underspend in marketing acquisition costs (which is the cost per lead) and possibly also fail to spend correctly to retain and grow existing customers.

Are all your customers equal?

In business be it big or small, it is always a good strategy to treat every customer differently. Now if you are able to segment the customers in your CRM database according to the profits they generate for your business you can operate your business smartly by delivering higher levels of support and service to the customers that are more profitable and thereby keep those customers for a longer period of time.

This can only be done by developing a CLV growth strategy for your business using an easy to use CRM software platform, to assist you in your path of rapid business growth.

What is the customer potential in your business?

By segmenting your customers according to their CLV potentials, your marketers can create more relevant campaigns and thereby generate more predictable results.

For example, if you are using an easy to use CRM software and is capable of identifying customers that fall both in the high CLV but low customer-share segment it suggests the biggest untapped potential for your company.

Segmenting your customers also allows more personalized, contextual and timely delivery of your campaigns to increase CLV and customer share for your brand.

It must be noted over here, that increase in CLV even by a few percentages can have a tremendous material effect on revenue and earnings of your company.

Conclusion

While still today most business establishment measures customer profit, which is a historic indicator for evaluating growth in businesses, CLV is the best metrics for predictive analysis that is capable of forecasting future value of your company’s business growth .

Finally, CLV also tend to acknowledge and recognize relationships with your customers as assets, which aids in repositioning your businesses’ focus from short-term profits to long-term relationships, and compliments many other customer-centric indicators found in easy to use CRM software platforms like Customer Loyalty, Customer Satisfaction or Net Promoter Score (NPS).

Similar Articles

Can Dynamics CRM Solutions Boost The Performance Of Marketing Campaigns?

Marketing is one of the most important aspects of almost every business around the world. As, only if a company is able to position itself nicely in the market and is able to gauge the attention of maximum people, then only it can think of touching the heights of success. 

How IoT Can Help Businesses Achieve Environmental Sustainability Goals

A business’ corporate sustainability doesn’t only depend on how much revenue it generates, but also on how efficiently it conserves resources and saves money. Internet of Things (IoT,) in this scenario, is emerging as an integral component to take care of corporate sustainability.

mobile app testing tools

The world of mobile is booming. It is flourishing year after year simply because the adoption of mobiles is growing immensely. After all, more than 3 billion people use a Smartphone! At the same time, companies have also realized the importance of mobile marketing or tapping the mobile audience.

Custom App Development

What if the world had no outliers? Nobody who thought differently? Just uniform thought and actions and procedures where everyone does the same thing in the same way without any thought? Sounds very discomforting, right? No doubt our individuality makes it not only difficult but impossible to always follow one set of similar rules and procedures in every aspect.

dash cam

There are many benefits of using the car dash cam. A dashboard camera can be useful in providing video evidence in case of car accidents. This article reveals some few tips on how to choose the best dash cam for your car.

liquid ring compressor system

Most industrial processes probably look for appropriate displacement devices that provide the best functionality for their processes. Apparently, Liquid Ring Compressors are designed to handle highly toxic, explosive and corrosive gases, and have a history of reliable performance

lubricating equipments

It’s important to understand how increased friction between two parts of a machine causes wear and tear. When your machinery or equipment maintenance team doesn't lubricate equipment properly, it causes equipment to overheat or get failed in peak production hours. It can also cause the surface to get tarnished.

Cloud Computing Benefits for Business Success

Cloud computing has brought about a significant transformation all across, irrespective of industry, geography, and size of the organization. Relieving the critical hardware maintenance burden and costs, the cloud computing technology increased the pace of business, minimizing human-intensive tasks and maximizing overall productivity.

Most Essential Online CRM Tools That Can Boost Profitability

If you are running a small or medium-sized business, like many others, you too might consider using online CRM tools that can help you to communicate and keep track of your customers more effectively.