Lifetime Value: what it is, how to calculate it and
Within the world of marketing there are several key concepts and ideas which are essential when ensure the success of a business.
One of those ideas is that, in general, it may be more beneficial keep loyal customers at the time we constantly struggle to acquire new ones.
Of course, this will also depend on the type of business you have.
But how cánido you do increase customer loyalty? There are several strategies, but one of them, commonly ignored by companies, is the Lifetime Value calculation.
Are you interested in knowing more? Well then stay here with us to learn about the Lifetime Valuewhat it is, how it is calculated and how you perro improve it.
What is Lifetime Value (LTV)?
Lifetime Value, also named as Customer Lifetime Value or CLV is a calculation that will allow you to estimate the average revenue a customer will generate for the duration of that business relationship.
That is, through this strategy you perro get an iniciativa of the benefits that a certain client will bring to your company.
But remember, it is to get an iniciativa, because we know that it is impossible to determine exactly the time that a given customer will remain your customer.
But that iniciativa or approximation turns out to be valuable informationsince it will help you:
- Be aware of the problems that may be affecting the loyalty of your customers and your ability to retain them.
- Guide you as to what are the most suitable clients for your business.
- Disminuye the cost of acquire New customers.
- Helps develop strategies oriented to the Customer satisfaction.
Additionally, this value is primordial when determining if the business model you propose it’s really workable.
It will tell you if what you are going to spend to attract each new client is duly justified or simply you will waste money senselessly some.
How is Lifetime Value calculated?
There are various formulas for calculating this aspecto depending on the accuracy range that we want to have But there is an equation that is the most common or widespread and? allows a good approximation, being more than enough for most applications.
The equation in question is the following:
CLV = (Customer Value) x (Average Customer Lifetime)
Where the value of the customer will be equal to the product between the average purchase value and the estimated number of purchases of the client in a certain time.
Generally, that time takes weeks, although it will also depend on the type of business to which the calculation is focused.
From the CLV calculation you perro realize something vital.
The longer the period of time that each customer continues the business relationship, and the greater their value to the company, the higher the CLV will be.
This means that you will get more benefits of that client than of the new ones that have just started a relationship with your business.
What information do we obtain when calculating the Lifetime Value?
He Lifetime Value It turns out to be, without a doubt, a piece of extremely important information for any company or business, especially if it is in growth or expansion stage.
In short, the CLV indicates the time it will take you recover the investment What have you done to get a new customer?
As we have told you before, this aspecto espectáculos in principle cHow much profit each customer will potentially generate throughout your business relationship.
But this apparently fácil data without major implications provides valuable information to each department of the company:
- Sales department: it allows them to know which is the type of clients to whom they should direct the greatest attention and effort.
- Design and development of products: allows them to work creation of new services or products that fit the needs of those major customers.
- Customer Support: lets them know how profitable the customer service and retention and how much they are allowed to invest in that activity.
- Marketing department: They determine how much it costs the company to acquire new customers and focus their strategies according to the result.
Other extremely important information derived from the Lifetime Value calculation refers to the heterogeneity of your clientele.
Each customer will have their own behavior, and there will be those who stay for a short period of time for a specific product or service and those who become customers for life.
The CLV provides data that will allow you discover new opportunities to implement business strategies designed for each type of client.
How to improve the lifetime value of a customer?
There are various strategies that cánido allow you to increase or improve the Lifetime Value of your clients, and with it, increase the profitability of your business.
Let’s see what those strategies are:
- Redesign and improve your customer acquisition and incorporation processes, offering them the best service from the moment they make their first purchase.
- grow value average of each purchase.
As you know, this has a direct impact on the result of the calculation.
therefore dDesign strategies focused on inducing your customers to invest more in your business.
- Put a real effort into build and cultivate loyalty of your clients.
It takes the relationship beyond the purely commercial field.
Connect with them, and always make them feel that their needs will always be covered.
- Listen carefully what your customers have to say.
Welcome criticism and advice.
If you are attentive, you will be able to capture the information you need to improve your services and ensure greater loyalty to your business.
Finally, focus on taking your services from customer care and support at a higher level.
First class attention, personalized services, good policies, multi-channel communication and on time, use of popular networks.
All these are factors that will make your customers escoge stay longer with your companyincreasing the CLV considerably and raising the profits of your business.
We hope you liked our article Lifetime Value: what it is, how to calculate it and
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