Understanding Customer Lifetime Value (CLV) and its Impact on Marketing Strategies

Why Does Customer Lifetime Value Matter in Marketing??

In the blog, we will look into?

What is CLV all about? How can you calculate it? And why does it matter? And it's impact in marketing.?

Introduction

Every business thrives with customer satisfaction and feedback. By doing so, the businesses will be able to strategically build their reputation and steadily expand. Customers lay the foundation and without them, there’s no business to begin with. Hence, Customer Lifetime Value plays a key role in shaping the business and its turnover.?

Imagine a hypothetical scenario where Riya, a bakery owner,makes sure that each customer who visits her bakery turns into a potential long-term customer or repeats the transactions. She understands reeling in such customers will establish a bond which will later on help her expand her business with more word to word publicity about the bakery and getting an idea of her ideal customers. This hypothetical example sums up what CLV is all about.

Let’s delve in deeper to get a clearer idea of what CLV is and how it works.

What is Customer Lifetime Value(CLV)?

Customer Lifetime Value refers to a metric that measures how much revenue a single customer can bring to a company or business throughout their entire partnership. It takes into consideration all the prospective transactions that might happen between the customer and the company during their partnership and calculates the total expected revenue from that customer.

There are two ways to measure CLV-one being the historic CLV, which takes into consideration how much a customer has already purchased from your company and the other is the predictive CLV, which considers the possible transactions. Both these ways help measure CLV and additionally help in dealing with customer acquisition, targeting, retention strategies, etc.

How CLV is calculated

Significance of CLV in marketing strategies

1. Customer Acquisition

Receiving repetitive orders from certain customers means that it allows the company to set a certain budget for acquiring new customers without having to spend more than the allocated budget. They can eventually surpass the customer acquisition cost (CAC) spent on them initially.It in turn helps in identifying the target audience and hence expanding the business accordingly. The greater the CLV, the lesser the CAC ensures customer loyalty, strengthening the bond and increasing their value to the business.

2. Customer Retention

In simple terms, customer retention refers to how many customers can be retained over a specific period.CLV helps in targeting the ideal customers and hence prioritising those customers in the long term. It helps in tailoring their strategies according to the needs and requirements of certain customers. It in a way provides tailored attention to both, benefitting both the customers and the business. CLV provides an opportunity with how many customers and which customers are worth investing and retaining in. It's easier to retain rather than acquire new customers due to the same reasons.

3. Loyalty Programs?

Loyalty programs will help in building a sense of trust within the partnership, encouraging repeat businesses with rewards given in turn in the form of either discounts or any other incentives. These programs are directly proportional to CLV as the programs will help to increase the rate at which the customers buy and how much they buy, increasing CLV. It also reduces customer churn,i.e. the loss of customers.

4. Increasing the revenue?

The greater the CLV, the greater will be the revenue. It will help in identifying the customers that contribute the most profit to the company through retention, acquisition, and loyalty programs enabling the prioritising and proper allocation of resources for each customer.

Conclusion

Customer retention, acquisition, and loyalty programs all work hand in hand while contributing to the increase of CLV. CLV quite literally provides the opportunity to give ‘special treatment’ to those customers deemed worthy of it. The hypothetical scenario of Riya’s bakery serves as an example of how prioritising CLV and maximizing its use will help in the long run for a successful business.

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The potential of Customer Lifetime Value (CLV) illuminates the path to sustainable growth and lasting relationships in marketing.