What is the Customer Lifetime Value?
Customer Lifetime Value (CLV) is an important business key figure. Generally speaking, it is the value that a customer can represent for a company over his or her entire “lifetime”. Both past and future sales can be included in the calculation.
- Helps in the planning of marketing campaigns
- Makes customer relationship investments verifiable
- Depends on various parameters
- Is an important key figure in the area of customer loyalty
Is an important key figure in the area of customer loyalty
If cost structures in customer management are to be optimized, investments in the customer relationship management sector are to be reviewed or marketing campaigns are to be planned, the CLV is used as an important business management indicator. As the name Customer Lifetime Value already makes clear, the value of individual transactions tends to take a back seat. The CLV is a forecast of the monetary value that a company will achieve from an entire customer relationship. There are various ways of calculating and estimating this value, which can be more or less complex and vary considerably from company to company. In any case, the fundamental fact is that not all consumers have the same importance for companies. Moreover, the CLV is not a static concept, as it can change due to various parameters. For example, if the customer retention rate changes, the customer lifetime value for all customer groups must also be recalculated. The most basic formulas always contain the variables contribution margin, repurchase rate, customer lifetime value and customer acquisition costs. The customer lifetime value can be calculated over one year or any other period. In simple terms, you simply take the revenue you generate with a customer and subtract the costs of acquiring and retaining that customer. A high customer lifetime value can be accompanied by a higher marketing budget, which means that the expected return on investment is also high. Customer lifetime value helps to estimate exactly how high the costs of customer acquisition can be to remain profitable. A disadvantage of the CLV is that in practice it is sometimes based on estimated values, which in principle involves some uncertainty.
How can the customer lifetime value be improved?
Customer Lifetime Value is also always referred to when the aim is to create a long-term customer relationship by providing the best possible customer care. After all, it is the cumulative value that a customer generates in his relationship with the company over the entire period. It is very important for the company to always have an open ear for the expectations and needs of its customers. Interactions should be personalized and helpfulness should be emphasized. In this way, customer lifetime value can be improved in the long term. Email marketing is particularly interesting for start-ups and smaller companies, as high CLV values can be expected in this sector due to the low cost of sending. The means to achieve high CLV values are manifold in practice. From personalized offers to loyalty programs, there are countless ways and possibilities. What always works, of course, is to provide top customer service and reduce acquisition costs. The customer must be taken seriously, then the customer experience automatically improves. The different areas of product development, marketing, customer service, customer experience and sales are all related to the CLV. If it is very high, the company can also release adequate budgets to Customer Relationship Management. This is because in these cases it is calculated that the respective consumer represents a correspondingly valuable asset for the company. Building a trusting relationship with the customer is far more valuable than a one-time interaction. Those who show that they can keep existing customers very successfully will always be able to win new customers without any problems.