The lifetime value of a customer represents the total amount of money a customer is expected to spend on your product or service during a lifetime. It helps you to figure out how much money to invest in getting new leads and retaining the existing customers.
Formula to calculate the customer lifetime value
Customer LTV= average dollar amount of a purchase X Number of customer purchases per year X Average length of the customer relationships in years
For example, a client who regularly buys jeans from your store might be worth:
$30 per pair of jeans X 3 pairs per year X 5 years= $450
Proven techniques to boost the lifetime value
- In order to encourage repeat purchases, create a rewards program that is desirable.
- Make your return and refund policies as easy as possible.
- Do not delay the delivery of products as it leads to disappointment.
- To build brand loyalty, offer freebies to the customers
- Use upsell technique to increase the average value of customer transactions. For example, “Would you like to get a brush with this toothpaste?”
- Stay in touch with your existing customers by sending them promotional offers every now and then.
Why is CLV important?
- Strong brand image - When you target the right audience and your quality customers turn into loyal customers, that is when your brand strengthens and you get a high CLV.
- It lets you grow - With a bigger margin, you can grow your business by developing new products or expanding overseas.
- Customers love your brand - A high CLV shows that customers love your product and service. When customers love the quality and experience, they have high chances of returning back.
- Better customer insight - Customer lifetime value gives you an insight into what customers feel about your brand so you can focus on improving the strategies and offers to serve them better.