Improving Customer Lifetime Value

Guiding strategic decisions through CLV

Measuring Customer Lifetime Value (CLV) is essential for understanding the long-term worth of a customer to a business and guiding strategic decisions around marketing, sales, and customer retention efforts. CLV represents the total revenue a business can expect from a customer over the entire duration of their relationship. To calculate CLV, businesses need to consider several factors, including average purchase value, purchase frequency, customer retention rate, and the customer’s overall lifespan with the company. By understanding CLV, businesses can prioritise high-value customers and tailor strategies to maximise long-term profitability.

Estimate their worth to predict revenue contribution

One of the simplest methods for calculating CLV is the basic formula: CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan. The average purchase value is determined by calculating the typical amount a customer spends per transaction, while purchase frequency measures how often the customer makes a purchase within a given timeframe (such as monthly or annually). The customer lifespan refers to the average duration a customer continues to buy from the company. By multiplying these three metrics together, businesses can estimate how much a customer is worth over time, providing a clear picture of their potential revenue contribution.

Optimise marketing efforts through pro-active segmentation

In addition to basic calculations, businesses can use advanced data analytics to predict and track CLV over time. Machine learning models and predictive analytics can factor in historical behaviour, customer demographics, and even external factors to forecast the future value of a customer. These predictive tools allow businesses to identify which customers are most likely to stay loyal, which are at risk of churning, and which have the potential for increased spending .By proactively segmenting customers based on predicted CLV, businesses can optimise their marketing efforts, targeting high-value customers with tailored messaging and incentives that increase retention and loyalty.

Identify trends & areas for improvement

To get the most out of CLV measurement, businesses should also focus on tracking and improving the factors that influence it. This includes enhancing customer retention rates, increasing purchase frequency, and driving up the average order value through upselling or cross-selling. By continuously monitoring CLV over time, businesses can identify trends and areas for improvement. For instance, if data shows that the CLV of a certain segment is lower than expected, businesses can investigate the causes—whether it’s poor customer service, lack of engagement, or pricing issues—and take corrective actions to improve the customer experience and ultimately drive higher value.

Improve existing customer value rather than increase acquisition

Used effectively, CLV can be beneficial in helping to shape your business strategy to keep customers loyal rather than having to replace them through acquisition.  Find out how we help customers develop a holistic but pragmatic approach to developing a CLV model that feeds and creates more valuable loyal customers.