There are so many numbers you already know by heart from running your business - revenue, COGS, visits, conversion rate, etc.
Why do we recommend adding Customer Lifetime Value to this list?
In the long-run, calculating Customer Lifetime Value may be one of the most important strategic differentiators between you and your competitors. If you can identify and service your high-value customers more effectively than your competitors, you'll grow more quickly.
But let's focus on the short-term. Below are three immediate wins you can expect from your first CLV project.
1. Who are my best customers?
You may be able to tell me who the latest subcriber to your newsletter was, the best-selling item from your store, or your gross revenue last month. But can you tell me who your top three customers are?
Calculating CLV will immediately tell you who your best customers are - those customers who are your biggest promoters, are most likely to tell their friends and family about you, and who you can expect to come back to you in the future.
You can't provide VIP treatment without first knowing who your VIPs are!
2. Who have I lost?
Similar to knowing who your best customers are, CLV will tell you who you've lost.
In other words, you'll immediately know what percentage of your customers are very unlikely to return to your business if not prompted in some way - whether through a targeted offer, advertising campaign, or even a simple "Happy Birthday!" message.
Combined with knowing who your best customers are, this information becomes incredibly important. You can focus your efforts on reaching out to and retaining your best customers you haven't seen in a while.
(And don't forget - because you have a CLV analysis, you know exactly how much you're willing to spend to retain these top customers.)
3. What's my average customer lifetime?
The third quick win you'll earn when completing a CLV analysis is understanding how long your average customer sticks with you.
Is your business a one-and-done for your customers? Is it more important to focus on acquisition?
Or are you seeing a pattern of long-term, loyal customers? Would your investment be better-spent engaging your existing customers, making sure they choose you next time they need to buy a gift, eat a meal, or take a vacation?
Become a better businessperson
The three metrics mentioned above are only scratching the surface of the deep knowledge that a high-quality customer lifetime value analysis can provide to you.
When companies are battling to differentiate themselves any way they can - from their products and services to their marketing materials and customer support - customer lifetime value is a low-hanging fruit that most of your competitors likely aren't using.
At Customer Analytics Partners we highly recommend conducting your own CLV analysis. Even if using a simple framework to start with, you'll quickly see the many valuable insights that result. We'll be here if you have any questions, need help getting pointed in the right direction, or are looking to take your CLV analysis to the next level.
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