Customer Lifetime Value (CLV)
Description
Customer Lifetime Value (CLV) is a metric that measures how much your business can earn from the average customer over the coming years.
Importance of CLV
CLV is an important metric that indicates the health of your business and customer base. For example, if your business has a customer lifetime value of $2500 and lost (churned) 10 customers this month, that is $25,000 in lost future revenue. Alternatively, if you are to gain 10 customers, that is an expected increase of $25,000 over the next several years.
Customer Acquisition Cost & CLV
Comparing CLV to customer acquisition cost is a quick method of estimating a customer’s profitability and the business’s potential for long-term growth
If your business’s customer acquisition cost is less than 1 year of their CLV, then it is worthwhile to spend to acquire customers. You will generate more revenue from that customer than what it costs to acquire them as a customer.
If your customer acquisition cost (advertising/marketing, sales expenses) exceed your expected CLV, then your business is at risk of losing money — you will lose money for every new customer you get.
Monitor CLV
· Monitor your CLV to understand how your business is tracking and what your CLV forecast can tell you about your business
· Encourage the sale of higher priced items to increase the average revenue generated from each customer
· Drive repeat sales to increase the CLV of your business
· Retain customers
o Make returns easy
o Offer targeted content and advertisements
o Ensure your product fits your market
o Upsell and cross-sell
o Respond to customer feedback
o Solicit feedback to improve your service and offerings
o Engage with your customers
o Brainstorm ways that you can increase customer loyalty and ultimately CL
BirdsAI Marketing™ Calculation
BirdsAI takes a simplistic approach to calculating your business’s CLV. We take the average revenue generated per unique customer (ARPC) and multiply that value based on the projected number of years.
For example, if your ARPC in the last trailing twelve months is $500/year, then your CLV over 5 years is $2,500 (500 ARPC* 5 years)
If you have any questions about BirdsAI Marketing™ or Customer Lifetime Value (CLV), please contact us at clientservices@birdseyeglobal.com
