How to Calculate and Increase Customer Lifetime Value (CLV)

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    Home / Growth / How to Calculate and Increase Customer Lifetime Value (CLV)

    It is best to rely on real metrics and data for strategic plans for your business.

    Various parameters and methods to follow are available to consider within this process. Customer lifetime value is a reliable parameter to learn the quality of the bond you establish with your users.

    Let’s see what customer lifetime value means and learn more about the ways to calculate and even increase it.

    What is Customer Lifetime Value?

    Customer lifetime value (CLV) enables you to measure the total revenue your business can make from a customer. Using this data, you can categorize your customer segments regarding their value for your business. It gives you vital insight while deciding on where to invest as it shows you the way to go for your plans for your business, from marketing to customer support.

    With this insight, you can know what to expect from a single customer and spend effort, time, and money accordingly. You lower the risks of overinvesting in a low-value segment and increase your benefits in all of the customer segments. 

    How to Calculate Customer Lifetime Value (CLV)

    Let’s start with how to use the data for the calculation. One calculation calls for three others. Before getting excited about measuring your customer lifetime value, you need to learn about some data:

    • Average purchase value: Divide your business’ total revenue in a year by the number of purchases within the same period. 
    • Average purchase frequency rate: Divide the number of purchases by the number of unique customers who bought from you within that period.
    • Customer value: Multiply the average purchase value by the average purchase frequency rate (two data you’ve reached out above)
    • Average customer life span: It is the average number of years a single customer keeps buying from you.
    Customer Lifetime Value 1

    Good news: Now, you are ready to calculate customer lifetime value!

    The Customer Lifetime Value Formula

    Just multiply the customer value by the average customer lifespan. It requires all-out effort; however, believe me, it deserves trying considering the benefits of this knowledge.

    How to Increase the Customer Lifetime Value

    This one is important because it means increasing the revenue of your business, and usually, this is the ultimate goal of growing a company, am I right?

    There are key points to support if you are interested in increasing your value. These points will help you increase sales per order and sales over time while reducing costs to serve customers.

    #1  Improve your Customer Service Department

    Professional life is a combination of communications.

    It is an immense network, and you need to maintain the network from the production to the sales department. A survey of 400 companies with 100,000 employees shows that each company loses an average of $ 62.4 million every year due to poor communication.

    Your direct interactions with your customers should be a unique and satisfying experience for both sides. Therefore, making it a priority to improve your customer service department is a must in increasing Customer Lifetime Value.

    #2 Invest in a better User Onboarding

    Is there any better way to improve your Customer Lifetime Value than kicking each and every one of your customer's journey with a great start?

    User onboarding is the crucial process that starts when a user first acquires a product and ends as they reach their "Aha!" moments.

    It is the very start of their experience with your company and it is the part where they decide if they want to be your customer, if your product is worth their time.

    Investing in a better User Onboarding experience today can help you increase the Customer Lifetime Value because each customer that goes through a great onboarding process will end up loving the product they are using.

    You can fix and improve your user onboarding today by using 3rd-party user onboarding software such as UserGuiding. UserGuiding allows you to create interactive product walkthroughs, highlight new features, send in-app messages, and conduct NPS surveys without coding.

    Customer Lifetime Value 2

    #3 Create customer-specific content

    Being generic is one of the biggest marketing mistakes.

    Stay away from generalizing your customers and activities suitable for the customer segments. Each segment is interested in another product and attracted by different tones. 

    When you create customer-specific content, you can directly promote this product in the tone they like. It is an excellent opportunity to build a long-term relationship, which quickly converts into a high customer lifetime value.

    #4 Provide unique offers

    Along with their area of interest and attraction, the necessities of different segments vary.

    This is why you cannot approach them all in a standard way. Instead, it is best if you provide unique offers to different segments to satisfy their necessities. 

    Discounts, color alternatives, alternative customer services... there are many ways to create your own unique offer specific to various conditions. Start with understanding your customers' expectations and then work to meet it.

    #5  Keep in touch after purchase

    The customer relationship starts after the first purchase and after that, you should be doing your best to maintain your relationship for a higher value.

    Let your customers remember you by sending them special day celebration messages or offering them special discounts. 

    You can find one million reasons to say hi. These messages make them feel closer to you and encourage them to be loyal customers.

    You can even apply this manner to those who knock your door but didn't finish the purchase process. You reach them to remind them of the product or service they have been interested in before. Let them know that you are available to assist them if they want to.

    Customer Lifetime Value 3

    #6  Keep your customers happy

    Your customers remember a positive experience and choose to be your customer for a long time. Happy customers are a great source of high customer lifetime value. 

    So, how will you make your customers happy?

    First off, provide the value you have promised to them. Make sure that your product does exactly what it offers every time they use it without any errors. Just doing your job alone sometimes is enough to satisfy your customers.

    You should also be transparent and give detailed information about your product or services. Be available to answer their questions and open to support them.

    Nowadays, people try various channels to reach out to the companies both for consultation and complaint. So, do your best to be available across the channels. 

    Frequently Asked Questions

    What is the Customer Lifetime Value formula?

    To learn your Customer Lifetime Value multiply the customer value by the average customer lifespan.

    Why is Customer Lifetime Value important?

    By measuring Customer Lifetime Value it is possible to see the bond of loyalty between you and your users, and by increasing it you can have more loyal users that will support you.

    Can my Customer Lifetime Value be negative?

    Yes, if the cost you spend on acquiring and maintaining a customer is more than what you profit, your Customer Lifetime Value will be negative.

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