Customer Lifetime Value: All You Need to Know

Learn more about customer lifetime value with this handy guide. Find out, in simple terms, what customer lifetime value is and how it impacts your business.

Customer Lifetime Value - What a Customer Really Means to Your Bottom Line

A customer's lifetime value is the total amount of money that a customer will spend with your company throughout the entirety of your business relationship. This number is offset by the amount of money your company spends on marketing, advertising, introductory offers and other means of generating new leads.

The Importance of Customer Lifetime Value

Customer lifetime value is a vital metric that can be used to gauge how much money your business has spent on acquiring new customers and how much you can reasonably expect from your returning customers. The higher the customer lifetime value the better, as this means you are attracting and keeping customers with minimum expenditure on your behalf. Aiming to keep this number as low as possible should be at the forefront of your operations.

How to Calculate and Boost Customer Lifetime Value

There are several ways for a business to calculate the lifetime value of a customer. One of the most common methods is to establish the average revenue per customer. This is achieved by dividing the total revenue of a customer by the number of months it has been since they first shopped with you. That value can then be multiplied by 12 to give you an annual customer lifetime value. Businesses may decide to do this for a small sample of customers to get a more accurate idea of the average figure from a range of customers. A surefire way to increase customer lifetime value is by providing quality customer service that sticks in their mind. By doing your utmost to impress your customers, you can increase the value of your relationship as well as the length and not have to resort to expensive promotions or marketing in order to win them back.

 

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