Measure Your Customer Lifetime Value With This 1 Simple Step

Customer lifetime value (CLV) explained & how you can measure it.

2 minute read

Customer Lifetime Value (CLV) is the indication of total revenue accumulated that a customer will bring to your business/company over their lifetime shopping with you. 

Understanding this metric will help you structure your incoming & outgoing margins, adequately charge customers & understand your profit line in the long term.

You can implement this into your own business & do the math with a simple equation on your current customers.

Understanding Customer Lifetime Value (CLV)

Learning your CLV will put you in a position of ultimate certainty that will encourage you to nurture your existing relationships. It costs much less to maintain customers than it does to acquire new ones. However, if your existing customers are costing you more than their value is worth, then this metric will be helpful to make an empowered decision.

For example, If the CLV of the average consumer at a shoe retailer is $2000, the retailer must spend less than $2000 in marketing & advertising costs to acquire a new customer & still be profitable (Customer Acquisition Cost (CAC). In other words, If you’re spending more than the CLV is worth, then your ad strategy simply isn’t working, or your CLV should be assessed. (Don’t worry, this doesn’t have to be difficult).

For example, If the CLV of the average consumer at a shoe retailer is $2000, the retailer must spend less than $2000 in marketing & advertising costs to acquire a new customer & still be profitable (Customer Acquisition Cost (CAC). In other words, If you’re spending more than the CLV is worth, then your ad strategy simply isn’t working, or your CLV should be assessed. (Don’t worry, this doesn’t have to be difficult).

Maintain Healthy Relationships

Maintaining healthy relationships with customers will not only increase your CLV, but your connection with customers will positively reflect on your business culture, which can make you or break you.

Reputation Is Everything.

apple logo

Providing exceptional service with proven marketing strategies can enhance your reputation, increase your referral rate & grow your profit line from the get go. Leaving a good impression & asking for feedback is a great way to start improving rapport with customers; & it’s free to do.

Louis Vuitton: Highly-priced designer brand leveraging 11x more expensive than regular bags & apparel. Which in turn, is justified simply because of their backbone reputation & quality.

CLV = One-and-done buyers to extremely high CLV

How to measure CLV

If you’ve had your hair cut at the same barber/salon for the past 10 years & it costs you $49 each visit, 6x visits per year. – Your lifetime value to that salon is $2,940.

Use This Equation Below To Calculate Your Own CLV

Multiply the following:

1. Average spend per visit or purchase

2. Multiplied by the regularity of visits or purchases (Customer Record To-date)

3. Current to date record i.e. 10 years

= your CLV

($49 x 6 visits per year x 10 years = your CLV ($2,940).

Bonus: Multiply again by your customer loyalty market average.

($49 x 6 visits per year x 10 years x market average of an extra 3 years = market CLV ($3,822)

You don’t necessarily have to track these metrics in order to profit. However, it can be useful to get an insight into your own margins. Besides, if it helps us understand ways to increase our bottom line, then why not give it a shot.

Want Something Free On Your Way Out?

If you want to learn alternative tactics and FREE quick tips like this, click this link & get a copy of our new eBook 100% FREE. Learn the 10 crucial questions to ask a marketing agency or any service-based business for that matter & you’ll save you BIG.

Free Book
error: Content is protected !!