Customer Lifetime Value (CLV) is also known as Lifetime Value (LTV). It is the profit margin that a company expects to receive from its customer over a while. It is a particularly important matrix when it comes to making decisions such as how much to invest in acquiring a new customer and retaining the existing ones.
The customer lifetime value must account for:
Though it is one of the most important matrices in any business, it is still ignored by some companies. They take the short-sighted approach of focusing on the single sale which proves to be costly eventually. It is important to find new customers for the growth of the company, but it is also important to optimize the lifetime value of existing customers. Only this can help them in creating a sustainable business model.
To calculate Customer Lifetime Value, you must use the formula:
Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention period × Profit Margin
Customer Lifetime Value = Lifetime Value × Profit Margin
Customer acquisition cost on the first purchase of your customer may very well be equal or less, but CLV helps in finding out the lifetime value of a customer for your business. Figuring this out will help you in planning your strategies on this basis. This will allow you to get the best from your customers. And you can also spend accordingly.
CLV helps businesses in knowing how much value a particular customer is adding to the business. Companies can send in personal gifts and offers to those who add a lot of value to their business. This will help in keeping them satisfied, and making them stick with you as a loyal customer of the company. It can also be used as a persona or look-alike model to get more such customers.
Retaining customers provides you with an opportunity to upsell them your services. This will help your business in increasing the CLV. This also allows you to segment your customers based on the value provided by them to your business. Which can be then used to provide a personalized experience, something that most customers expect from your brand.
The amount of competition in the e-commerce market is immense. Price is not the only factor that determines the customer's buying decision.
CLV is a huge factor when it comes to building strong relations with your customers. It not only helps in retaining the existing customers but also helps in increasing the revenue. It also helps companies to get good returns from their lesser valuable customers over time. This improves the overall customer experience.
Customer Lifetime Value is not based on a single factor, multiple factors are accountable. While finding the customer lifetime value you may not just think about the sale, but look at the whole customer journey. It includes: when, where, why, how much, and how often do your customers make purchases from you. Answering these questions will bring valuable insights to your company. This is also important in fixing issues that might arise during this journey.
Customer Loyalty is a strong ongoing bond between the customer and the brand.
Loyalty is what drives your customers to make repeat purchases with your brand as well as promote your brand through word of mouth. It is the factor that stops your consumer from switching to some other brand offering similar services.
The factors that drive customer loyalty are:
Metrics to measure your customer loyalty are:
Measuring CLV might be challenging to some companies due to all the data it requires. But if an organization has integrated its data from all the areas it becomes easier to calculate.
It can be measured using the following:
Good customer service is very essential in retaining and building a good bond with your customers. Creating new customers is difficult, and in times of crisis like the one ongoing, it is very tough to make new ones. It is the loyal customers that stick to your business during such times, showing you the importance of CLV.
Chatbots can help in providing a customer-centric business that provides customized experience. This makes your customers come back to your brand again & again. Customer loyalty is what translates into strong customer lifetime value. Something that will keep your customers engaged with you even during tough times.
The answer to this question is YES!
Customer Service plays a significant role when it comes to customer lifetime value and customer loyalty. AI chatbots & Live chat platforms have completely changed the look of modern customer experience. They can constantly provide the same experience, making them the right fit in your marketing strategy.
Investing in them would ensure a good customer experience to your customer consistently improving the Customer lifetime value. Hence AI (Artificial Intelligence) chatbots can help companies in increasing their customer lifetime value.
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