Futureproofing Your Business: Where Customer Experience Meets Lifetime Value

Forget flash sales, fleeting trends, and pleasant chat and call center agents. The future of business isn't built on momentary hype, it's forged in the furnace of deep customer relationships. And measuring it with NPS (Net Promoter Score) isn't going to cut it. Next to sales, Customer Lifetime Value (CLV) is arguably the backbone of business and any successful Customer Experience (CX) program.

Think of CLV as the holy grail of customer metrics. It's not just about a single purchase, it's the sum of all interactions a customer has with your brand, their emotional investment, and yes, the revenue they bring over their lifetime. And here's the secret sauce: a phenomenal CX is the key ingredient to unlocking astronomical CLV.

In a world of fleeting attention spans, Tiktok, and instant gratification, the need to feel understood while having a deeper connection will become driving force of not only keeping attention, but also keeping customers. CLV is the answer to knowing how well a business does just that.

"Investing in CX isn't just about a cost center," declares Jeanne Bliss, CX pioneer, "it's a growth engine. Every dollar spent on CX delivers an average return of $3, with top performing business reaching a staggering $13 for every dollar."

"CX is no longer just about being nice," says Micah Solomon, CX thought leader, "it's about becoming indispensable in your customer's life."

So, how do we crack the code of this future-proof equation? There are actually several ways to calculate CLV, and each one has their pros and cons. For illustrative purposes we'll use the equation below.

Variable profits in year 1, 2, 3, and so on for the years you have data. 5 years is sufficient for a first cut. Subtracted by Customer Acquisition Cost (CAC).

This data is not easily obtained and is often political as it forces accountability. CAC takes a lot of data into consideration:

Media spend – All amounts spent on media, including digital, TV, podcast, print, and radio; Trade shows; And marketing displays

Creative spend – All amounts spent on creating the media mentioned above ?

Labor – All amounts spent employees, consultants, and agencies involved in sales and marketing

Travel and entertainment – All amounts spent by sales and marketing people on travel and entertainment

Overhead – All amounts spent on indirect costs such as office space, phones, computers, and supplies for sales and marketing people

Number of new customers acquired represent customers that are doing business with the company for the first time and have never purchased something in the past.

Once you have the data calculate with caution. The first pass is simply a starting point of where to get closer to the truth. With each pass and accuracy of the inputs will a clearer picture start to appear.

This might seem exhausting to keep working the data down from ranges/estimates to gain accuracy with each calculation, but it's worth the effort.

Simply put, it gives your CMO or CXO strategic decision-making power.

• Identifying profitable customers: CLV reveals which customer segments generate the most revenue over their lifetime, allowing you to prioritize resources and marketing efforts towards them.
• Customer acquisition vs. retention: CLV helps compare the cost of acquiring new customers versus retaining existing ones, guiding you towards more cost-effective strategies.
• Product development and pricing: Understanding CLV informs product development decisions and pricing strategies by revealing what features and price points resonate most with your high-value customers.

Financial forecasting and budgeting:

• Predicting future revenue: CLV estimates provide a clearer picture of future revenue streams, enabling more accurate financial forecasts and budgeting.
• Optimizing marketing ROI: Analyzing the CLV of different marketing campaigns helps you identify the most effective channels and allocate your marketing budget accordingly.
• Justifying investments in CX: CLV demonstrates the financial return on investment (ROI) of improving customer experience, making it easier to secure budget approval for CX initiatives.

Provides an ROI on Empathy:

• Predictive loyalty: By understanding the factors that drive CLV, we can identify our most valuable customers and prioritize experiences that keep them singing our praises, growing repeat purchase rates by 11%, as McKinsey & Company found.
• Community champions: Loyal customers become brand ambassadors, organically spreading the word and attracting new converts, fuelled by their positive experiences, generating 5x the revenue of an average customer, according to Accenture.
• Reduced churn: When customers feel valued and understood, they're less likely to stray. Investing in CX isn't just about acquiring new customers, it's about keeping the ones we have happy and engaged, reducing churn by 30%, as reported by Temkin Group.

By calculating CLV, businesses and successful CX programs gain valuable insights into their customer base, enabling them to make data-driven decisions that optimize profitability, improve customer retention, and drive sustainable growth. So, it's not just a number, it's a powerful tool for building stronger customer relationships and unlocking the true potential of your business.

For additional reading and resources on CLV I highly recommend Daniel McCarthy's work on CLV.