What are the best ways to use customer lifetime value (CLV) in your small business marketing strategy?

1 How to calculate CLV

There are different methods to calculate CLV, but one simple formula is to multiply the average revenue per customer by the average retention rate and the average lifespan of a customer. For example, if your average customer spends $100 per month, stays with you for 12 months, and has a 50% chance of renewing, then your CLV is $100 x 0.5 x 12 = $600. You can also adjust this formula to include the cost of acquiring and serving each customer, which will give you a more accurate picture of your profitability.

2 How to segment customers by CLV

Not all customers are equally valuable to your small business. Some may spend more, stay longer, or refer more than others. By segmenting your customers by CLV, you can identify and target your most profitable segments and tailor your marketing messages and offers to their needs and preferences. For example, you can use tools like Google Analytics or CRM software to group your customers by their purchase behavior, demographics, location, or interests, and then calculate their CLV accordingly. This will help you allocate your marketing resources more efficiently and effectively.

3 How to increase CLV

Once you have calculated and segmented your CLV, you can take various strategies to increase it and consequently boost your revenue and profitability. For instance, you can improve customer satisfaction and loyalty through high-quality products, customer service, and value-added benefits. Additionally, you can encourage repeat purchases and cross-selling through discounts, rewards, referrals, or subscriptions. Moreover, upselling and increasing the average order value can be achieved by suggesting complementary products, bundles, or premium options. Furthermore, reducing customer churn and increasing retention can be done by sending personalized emails, surveys, feedback requests, or reminders. Finally, attracting new customers with high potential CLV is possible through targeted ads, content marketing, or influencer marketing.

5 How to use CLV insights

Finally, you can use the insights you gain from your CLV analysis to improve your marketing strategy and decision-making. For instance, you can set achievable goals for your campaigns and prioritize and optimize your marketing channels based on their impact on CLV. Additionally, experimenting with different messages, offers, and formats can help you determine what works best for different customer segments. Furthermore, creating personalized content and experiences based on their CLV and preferences can help build long-term relationships with customers. Finally, by exceeding expectations and adding value to their lives, you can create profitable relationships with customers.