Customer lifetime value is the metric that indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer’s revenue value and compares that number to the company’s predicted customer lifespan. Businesses use this metric to identify significant customer segments that are the most valuable to the company.

CLTV tells businesses how much revenue they can anticipate one customer to create throughout the business relationship. The longer a customer continues to buy from a company, the higher their lifetime value becomes.

This is something that customer support and success teams have direct influence during the customer’s journey. Customer support reps and customer success managers play critical roles in solving problems and offering recommendations that influence customers to stay loyal to a company or to churn.

Customer Lifetime Value Model

  • Calculate average purchase value: Calculate this number by dividing your company’s total revenue in a period (usually one year) by the number of purchases throughout that same period.
  • Calculate the average purchase frequency rate: Calculate this number by dividing the number of purchases by the number of unique customers who made purchases during that period.
  • Calculate customer value: Calculate this number by multiplying the average purchase value by the average purchase frequency rate.
  • Calculate average customer lifespan: Calculate this number by averaging the number of years a customer continues purchasing from your company.
  • Calculate CLTV: multiply customer value by the average customer lifespan. This will give you the revenue you can reasonably expect an average customer to generate for your company throughout their relationship with you.

Ways to Increase the Customer Lifetime value

Customer Lifetime Value
  • Segment Your Email and SMS Lists

Whether you’re marketing to your customers via email or SMS or both, make sure they get segmented based on wherever they are in the sales funnel and what their interests are.

  • Take Advantage of the Freemium Model

One of the best examples of the freemium model increasing customer lifetime value is in-app purchases. You can play Candy Crush without spending a dime, but if you want to purchase extra lives or other boosts to the game, you need to pull out your wallet.

This model increases customer lifetime value because consumers get to try out your product, become captivated of it, and decide to pay money.

  • Make Use of Thank-You Emails

Gratitude goes a long way in business. It’s also a great way to keep in touch with your customers.

A thank-you email is a message you send consumers right after they purchase something from you. It doesn’t ask for anything; it just lets the customer know you appreciate their patronage.

The point is to make contact with the customer right away. Keep your brand top-of-mind to encourage repeat visits to your website.

  • Create a Seamless Buying Experience

People often fail to purchase products from a company more than once because of problems with the buying experience.

Customers get irritated if they’re timed out during the purchase process or if you ask for too much information.

Conversely, customers who enjoy a seamless buying experience often share that fact with their friends. They let others know that you not only sell a great product or service but that it’s easy to buy from you.

  • Use Checking-In Emails

Another great way to increase customer lifetime value is to get in touch with dormant customers.

These are people who have bought from you in the past but have been inactive for an extended period, such as six months.

Please send an email that casually asks how they are and whether they’re interested in returning to your site.

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