Acquiring and retaining customers is crucial, but one key metric that many businesses may overlook when gauging their success is customer lifetime value, or CLV. This marketing metric helps you measure the overall value each customer brings to your company through engagement and repeat business.
Maximizing your customer lifetime value is essential if you want to get and stay above, as it enables you to hold the spotlight. The following is a breakdown of what this metric is and some strategies to increase customer lifetime value.
Customer lifetime value (CLV) is a metric you can use to measure the total income you can expect to earn from a single customer over the course of that customer's relationship with your business.
It accounts for the entire lifespan of that relationship, from the time you initially engage prospects to the time they stop doing business with you.
You can get a feel for your CLV by considering your total average overall income along with the total average income each customer brings. Looking at these metrics will help you determine how customers are engaging with your business and what you need to do to ensure they continue interacting with your brand.
As an example, a fashion retailer may discover that the average customer spends around $100 every visit and makes a purchase once every month (i.e. 12 times per year) over the course of five years. The retailer could then multiply these numbers together to give a specific CLV. In this case, the retailer would use the following equation based on the numbers gathered: 100 x 12 x 5. This would give the company a CLV of $6,000, meaning that the average customer is likely to spend $6,000 total throughout their relationship with the business.
Customer lifetime value is important because it helps businesses to understand the long-term profitability of a customer and enables them to make strategic decisions to maximize profits.
There are multiple reasons why CLV is important for businesses of all types. Regardless of your industry or the size of your business, CLV can be an invaluable metric that gives you an idea of how well you're connecting with customers.
The following are some specific benefits of customer lifetime value for businesses:
Measuring customer lifetime value isn't difficult and involves a straightforward calculation. As long as you have the necessary numbers to factor into CLV, you can get this number quickly and easily.
When calculating CLV, you'll use the following simplified formula:
Customer Value x Average Customer Lifespan = Customer Lifetime Value
The customer value is the average order cost along with the frequency of orders. Meanwhile, the average customer lifespan is the specific number of years customers stay with the business on average.
So, you can expand on that formula as:
Average Order Value x Average Number of Purchases in a Set Period x Average Customer Lifespan = CLV
Using the general formula, you'll be able to determine how much money the average customer is contributing to your total revenue. If you can figure out how to increase CLV, you'll be able to significantly increase customer retention, average order values, repeat sales, and profitability.
Want to increase your CLV? There are plenty of strategies to increase customer lifetime value and, subsequently, profits. The following are some of the most effective ways to increase customer lifetime value:
While acquiring many new customers is important for increasing profits, you should also upsell and cross-sell to your current customers. You can achieve this by encouraging customers to buy more of the same item or compatible items to supplement the base purchase.
For example, you could include a multiplier during checkout that allows customers to order a shipment of two, four, six, or eight of the same item at a lower price. You could also bundle multiple items together to boost your average order value (AOV). Another strategy would be to recommend another product or service based on a customer's order history or interests.
Today, consumers want more personalization than ever before, and recent statistics prove this: 89% of marketers have experienced positive ROI thanks to personalization, and 60% of consumers state that they're willing to become repeat customers due to a personalized shopping experience. Additionally, 80% of consumers are willing to share personal data in exchange for compelling offers and deals.
People want to feel like the brands they do business with actually care about and value them. Through personalization, you'll speak more personally to each customer, which is likely to engage them on a deeper level.
There's almost no limit to how you can create a personalized experience your customers love. For instance, you could make personalized product recommendations based on each customer's expressed interests and purchase history. You could also send personalized deals, address customers directly in your messaging, and even adjust the layout of your website or mobile app to appeal to each individual user.
One effective way to increase CLV is through an optimized checkout experience. One of the biggest bottlenecks for customers when ordering online is a needlessly drawn-out checkout process. In fact, businesses lose around 18% of customers specifically because of a complicated or confusing checkout process.
Ordinarily, checkout on websites and in apps may involve viewing multiple pages of forms, potentially leading customers to abandon the process before completing a purchase. You can avoid this altogether with the help of Storyly's In-Story Checkout feature.
Digital shopping should be optimized in a way that meets the expectations of the customers while creating a frictionless shopping experience. In-Story Checkout shortens the path from discovery to conversion with an instant card builder and checkout platform directly within the Story format. Users won’t have to leave the Story that captured their attention and can easily purchase the products they see in the Story in one step. Stories provide a fun way to showcase the latest looks, and In-Story Checkout speeds the path to conversion through a social-media style product discovery experience.
Customer loyalty and rewards programs are essential in helping keep customers loyal to a brand. These programs encourage customers to make repeat purchases in exchange for a reward, often by giving them points or another type of brand-exclusive currency that customers can spend on products or services. They can also involve giving freebies to customers after a certain number of orders.
People are eager to spend more money if they can anticipate a reward, making these strategies among the most effective in boosting CLV and profits.
Customer onboarding is important for bringing people through to an initial purchase and keeping them invested. If your onboarding process takes too long or is otherwise inefficient, customers won't stick around for long. Make sure customers know how to find what they're looking for on your website or app.
If your onboarding strategies are effective enough, you can ensure customers continue to do business with you and don't drop off. With an effective onboarding strategy, you'll be able to successfully map the customer's journey and ease them into a long-term relationship with your brand.
Your customer service must be stellar or people will turn to competitors that offer better service. Whenever customers have any questions or concerns, make it easy for them to get in touch with your customer service teams. You could do so by creating a "contact us" page with a convenient contact form, chatbots and live chat representatives, email correspondence, and more. If you show that you truly care about your customers and want to help them, this will substantially help build loyalty.
Want to increase customer acquisition along with CLV? Offering referral programs is the perfect way to improve both.
Referral programs function as a kind of rewards program, giving customers the incentive to tell others about your brand in exchange for a specific reward. You might offer a certain discount percentage for each new customer referred to your business through an existing one. This strategy would get more customers to stay with your brand while growing your customer base. If you offer superior products or services, your existing customers will likely be more than happy to share the experience with others through referrals.
In addition to personalization, gathering feedback is another way to make customers feel appreciated and heard. Requesting feedback will give customers the chance to speak their mind, and the input you receive could inform future advertising, marketing, and sales strategies.
You can easily collect customer feedback by conducting surveys or polls at the right time. One way to go about this is to request customers to complete a quick survey immediately after they make an order or receive one. You could also conduct occasional polls for all customers or those within a specific segment to complete.
Another great way to collect feedback is utilizing the interactive elements Storyly Stories offer for apps and websites. Brands can add interactives such as polls or quizzes to Stories to increase engagement, and collect feedback and zero-party data from the customers themselves. This way, brands can gain valuable insights into their customers while keeping them engaged and entertained.
Email remains a key asset that you should use to continue connecting with new and existing customers. You can use email in numerous ways to engage with customers, including:
These and other types of email content can appeal to new customers and bring them through to a sale, or you can use them to bring existing customers back to you more frequently. Email is also a great way to get in front of people if they're not actively engaging with your platforms.
Increasing CLV will help you retain more customers and increase your total revenue. With the help of the right tools and strategies behind your marketing efforts, you'll be able to measure and boost CLV along with other essential metrics.
If you're searching for a reliable and innovative solution to improve CLV, consider integrating Storyly. This platform enables businesses to create high-quality Stories that help attract customers and engage them in the long-run. Book a call or get started for free today.