How do you compare your customer lifetime value with your competitors or industry benchmarks?

2 How to calculate CLV?

There are different ways to calculate CLV, but one of the most common methods is to use the following formula:

CLV = Average Order Value (AOV) x Purchase Frequency (PF) x Customer Lifespan (L)

AOV is the average amount of money a customer spends per order. PF is the average number of orders a customer places per year. L is the average number of years a customer stays with your business. To calculate CLV, you simply multiply these three factors together.

For example, if your AOV is $50, your PF is 4, and your L is 3, your CLV is:

CLV = $50 x 4 x 3

CLV = $600

This means that each customer brings you $600 in revenue over their lifetime.

3 How to find competitor or industry CLV?

Finding your competitor or industry CLV can be challenging, as most businesses do not disclose this information publicly. However, you can use some sources and methods to estimate their CLV, such as industry reports and studies, customer surveys and reviews, and competitor analysis tools. For instance, you can use a report by Shopify to find the average CLV for different ecommerce categories. Additionally, you can conduct surveys or analyze reviews of your competitors' customers to get an idea of their AOV, PF, and L with tools like SurveyMonkey or Trustpilot. Furthermore, you can use tools like SimilarWeb or SEMrush to analyze your competitors' website traffic, conversion rate, and revenue. With SimilarWeb you can estimate your competitors' AOV and PF based on their monthly visits and sales; with SEMrush you can estimate their L based on their customer retention rate.

4 How to compare CLV?

Once you have calculated your CLV and estimated your competitor or industry CLV, you can compare them using different methods such as ratio analysis, gap analysis, and benchmarking. For example, a ratio analysis is done by dividing the two CLVs and getting a ratio. A gap analysis is done by subtracting the two CLVs and getting a gap. And benchmarking is done by setting a target or a standard and measuring how close or far you are from it. For instance, if your CLV is $600 and your competitor's CLV is $400, your CLV ratio is 1.5, meaning that your CLV is 1.5 times higher than your competitor's. If your CLV is $600 and your industry average CLV is $500, then the CLV gap will be $100 which means that your CLV is $100 higher than the industry average. Lastly, if your goal is to have a CLV of $800 and your current CLV is $600, then the CLV benchmark will be 0.25 which means that you are 25% below your target CLV.

5 How to use CLV comparison insights?

Comparing your CLV with your competitor or industry CLV can provide you with valuable insights that can be used to improve your customer retention strategy. If your CLV is lower than your competitor or industry CLV, you can focus on increasing AOV, PF, or L by offering upsells, cross-sells, discounts, referrals, rewards, or subscriptions. Conversely, if your CLV is higher than your competitor or industry CLV, you can focus on maintaining or enhancing customer loyalty, satisfaction, and retention by providing excellent customer service, feedback, personalization, or education. If your CLV is close to your competitor or industry CLV, you can differentiate yourself by highlighting unique selling points, benefits, or features. By using these methods and tips to compare your CLV with other businesses in your niche and use the insights to optimize your customer retention strategy.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?