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Proven tips that boost customer lifetime value

ENTERPRISE
By Pauline Muindi | Dec 29th 2021 | 4 min read
By Pauline Muindi | December 29th 2021
ENTERPRISE

Customer lifespan refers to the length of time a customer is expected to have a relationship with your company. [Courtesy]

What is the value of a customer to you? If you can predict this amount, you’ll know how much it’s worth to spend on your consumers in order to maintain them.

Customer Lifetime Value or simply CLTV, is one of the most essential metrics a company can use to make informed decisions. This could include, for example, determining your advertising and marketing budget.

You also know how much more money your company will make in the long run if you increase your CLTV standard by X per cent. This helps you to invest the right amount of money and time to attract and keep high-profile clients. As a result, there will be more income, allowing you to scale. However, growing is impossible if client acquisition expenses exceed CLTV.

CLTV calculates how much money a business may expect to make from a single customer over the course of its lifetime. The longer a customer with a high average purchase value stays loyal to your business, the greater their lifetime value becomes.

How do you calculate customer lifetime value?  It’s simple: estimate the average value of sales from the customer and their predicted lifespan. To figure out the average purchase value of your customers, divide the company’s total revenue over a certain period with the number of purchases within the said period.

Next, calculate the average purchase frequency by dividing the total number of purchases over a period by the number of individual customers who made the purchases during the same period. To get customer value, multiply the average purchase value by the average purchase frequency.

Customer lifespan refers to the length of time a customer is expected to have a relationship with your company. Divide the total of your customers’ lifespans by the number of customers to get the average customer lifespan.

Use these values to calculate customer lifetime value. Customer lifetime value is the product of customer value and average customer lifespan.

Now that you know how to calculate customer lifetime value, here are some tips to help you improve it:

Cross-sell and up-sell

Cross-selling and up-selling are two traditional sales methods that are used by sales teams all around the world. Cross-selling and up-selling opportunities are likely to come from your existing customers. They already know you and your product or service.

While it’s quite easy to suggest other products to up-sell or cross-sell to your customers, you run the risk of coming off as pushy or overly sales – so you must tread carefully.

If you’ve sketched out the lifespan of your product, keep an eye on where your clients are in the process. As they near the end, draw their attention to the products or services that they can purchase next in order to continue receiving the value they desire from you. Your consumers will buy more products and services over time if your sales force knows what they’re doing and your product checks all the criteria, raising CLV. 

Give your customers something extra

How about giving your customers a little extra something that your competitors don’t offer? Feature, service, or resource can make you the better option over the competition, increasing your customer loyalty and consequently, the CLTV.

A simple gesture such as offering personalised service to each customer communicates that you value them, which boosts their lifetime value to your business. Think about what your customer will value. Would they appreciate lower delivery fees? Would they like to receive a personalised gift card occasionally? Identify high-value customers and go the extra mile to increase their lifetime value to your business. 

Act on customer feedback

Constant improvement is a terrific method to keep your clients devoted to your business. Rather than relying on numbers or your instincts, customer feedback will tell you exactly what to do to better meet your customer’s needs.  You can create a poll that includes a couple of the ideas you’ve been considering and distribute it via your blog, social media accounts, and email.

Always leave an opportunity for customers to suggest things you didn’t think of, and always give them a reason to participate in the poll. Even if it’s simply a chance to win a tiny prize like a gift card or early access to a new feature, it’ll make a big difference in how many people engage.

Give your customers credit for coming up with the idea if you make a change or update based on their comments. Make it known across all of your marketing channels, and send them something to express your gratitude. 

Create a referral programme

Referral programmes are simple to start in almost any business, whether it is entirely online or has a physical location. It’s a great, low-cost technique to boost CLTV once it’s set up.

Word of mouth is a powerful marketing strategy. When someone tells you that a company, product, or service is worthwhile, it’s usually because it’s worthwhile to them as well. When someone discovers something valuable, they want to share their discovery with others.

Done correctly and with enough current goodwill and sentiment among your consumers, you may turn your customer base into a low-cost sales and marketing platform. Having your current customers help in locating additional business makes them even more loyal to your brand, increasing their lifetime value. The customers they bring in are also more likely to have a high lifetime value while they cost a fraction of what you’d spend to onboard more conventional prospects.

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