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Customer Lifetime Value


1. What is Customer Lifetime Value?

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:

  • Customer acquisition costs (CAC).
  • Ongoing sales & marketing expenses.
  • Operating expenses.
  • Cost required to manufacture and sell the product or service, etc.

 

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.

 

2. How is CLV Calculated?

To calculate Customer Lifetime Value, you must use the formula:

Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention period × Profit Margin

Or 

Customer Lifetime Value = Lifetime Value × Profit Margin

 

3. Why is Customer Lifetime Value Important?

 

  • Customer Lifetime Value helps in calculating the acquisition cost per customer.

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 allows you to segment your customers on the basis of the value they provide to your business.

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.

 

  • CLV plays a huge role in the Long-Term Growth of the company.

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.


  • The process of finding your CLV provides valuable insights.

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.

 

4. Steps to increase CLV?

  • Impress your customers by the quality of your product and then through your dedication to customer service.
  • Retarget your existing customers & make sure to engage with your audience while running your marketing strategies. Offer personalized deals and offer to your loyal customers.
  • Retain your customers. Retaining them will not only get you more sales from their side but they can also promote your brand through word of mouth.

 

5. What is the meaning of Customer Loyalty? And what factors drive them?

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:

  • Phenomenal customer service/experience
  • Understanding your customer's journey
  • Focusing on long-term strategies over short-term purchases.
  • Employee experience. (Happy employees = Delighted customers)

 

6. How to Measure Customer Loyalty?

Metrics to measure your customer loyalty are:

  • Net Promoter Score.
  • Engagement with the brand.
  • Repurchasing levels of your customer.
  • Multiple product purchases.
  • Customer Loyalty Index (CLI).

 

7. How Do You Measure CLV?

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:

  • Identifying the touchpoint of the customers.
  • Integrating your data and records to create a buyer's journey.
  • Calculation of revenue at touchpoints.
  • Adding all the matrices to get the lifetime value of the customer.
  • Formula: Customer acquiring cost - Customer revenue = The Customer Lifetime Value.


8. Why Is CLV Important for Your Business?

  • Helps in acquiring high-value customers.
  • Retains your existing customers.
  • Helps in segmentation of customers based on value.
  • Prevents churn.
  • Helps in finding loopholes in the buyer's journey.
  • Helps in planning and strategizing your budget.
  • Measure the Ad performance.
  • Compare the actual performance with the expected performance & evaluate them.

9. How Good Customer Service Can Improve Your CLV? 

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.

 

10. In what ways can chatbots improve your customer experience?

  • Can significantly reduce cost & improve resource optimization.
  • Gathering customer data.
  • Better interactions with customers.
  • 24*7 for 365 days support.
  • Collection of valuable insights.
  • Simplified task management.
  • Assisting customers in making product/service decisions.

11. Can chatbots help companies in increasing their customer lifetime value?

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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