Customer Lifetime Value (CLV)

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The Customer Lifetime Value (CVL), is the expected amount spent from each individual client to your business, or products of your business. From these figures, it can be advantageous what to invest in whether it would be more beneficial to invest in attracting new potential customers or focus on current clients and how to retain them.


As an example, the CVL of a Mini Cooper may be approximately £14,000, but if they are delighted with the service, they may eventually upgrade to the elite John Cooper works. However, the average for the regular mini buyer may be higher dependant on the customer's requirements. Equally, a person that buys a home for £15,000 from an estate agent while the value of the product is high, the agent only receives a fraction of this.


Gaining the full picture allows you to gage the CVL of the customer relationship, allowing you to have a guide on how much you should be putting into maintaining customer relationships says Aaron Baker senior manager from Bluebird Accountancy. For example, if you calculate a customer's CLV to be £400 then you should therefore not spend any more to maintain the relationship. This would just not be profitable.


Calculating CLV


The easiest way you can calculate the CLV is to:
CLV = average value of a purchase X number of times the customer will buy each year X average length of the customer relationship (in years)


For example, a regular marathon runner may purchase shoes would be worth:


£95 per shoe x 3 pairs a year x 10 years = £1,950


Whereas the mother of a small child could be worth:


£30 per shoe x 4 pairs per year x 10 year = £1,200


This clearly shows who you should be focusing your attention to.


Knowing the worth of your CLV


"The main benefit of this is you can regulate different customers and helps a lot with decision making, regarding business decisions" says Ciaran Woodcock senior marketing manager at Churchill Knight & Associates UK's top 100 contractor accountancy firms.

 

It can also determine many other things:


• How much you are willing to spend to attract a similar customer simultaneously with a profitable and worthwhile relationship
• What the demands of the highest CLV’s are and what products you could next sell
• The products that have the highest profitability
• Narrowing down who are the most profitable clients


Collectively, these decisions can enhance your business’ profitability.


Boosting Lifetime Value


According to eConsultancy, the odds of selling to a current customer is 60%-70%, and there’s 5-10% chance of selling to new customers, the key is investing in your existing customers and resources to these customers. Below are some proven techniques that are known to increase the chance of a customer buying more from your company:


• Ensuring it is a smooth process for customers wanting to return items as if it’s too difficult people just won’t buy from you full stop.
• Setting realistic delivery dates, it’s better to underpromise and overdeliver.
• Encouraging rewards for purchases such a points system with tiers, for example, ASOS demonstrates this well.
• Upselling so you can increase the average transaction, for instance, if they are buying a cinema ticket asking if they want popcorn or drink?
• Maintaining contact – long-term customers want to know their custom is valued and want to know they are not forgotten.


All these points will enable you to grow a profitable, successful business that allows you to attract and retain long-term customers who will become promoters for your business and repeated buyers.

 

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Wednesday, 21 November 2018
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