Marketing

What Is Customer Lifetime Value?

What Is Customer Lifetime Value?
Written by Amy Sorter

What is customer lifetime value (CLV)? Customer lifetime value is the total amount of money an entity or individual is expected to spend on a business’s products or services, for as long as that entity or individual remains a customer. Sometimes known as “lifetime value,” the CLV is a valuable metric for assisting with targeted marketing efforts.

Customer retention is a huge issue when it comes to doing business. But retaining ALL customers simply isn’t feasible, nor is it desirable. So, which customer should be better targeted when it comes to marketing efforts?

Enter the customer lifetime value concept.

CLV, sometimes known simply as “lifetime value,” is the total amount of money a customer is expected to spend on a business’s products or services, as long as that individual or entity remains a customer.

CLV operates on the idea that it’s much easier to retain interested, active customers than to seek out new ones. It also operates under the concept that it is these interested, active customers who should be targeted — and hopefully, retained — through various marketing efforts.

The CLV formula is as follows:

(average value of sale) x (number of transactions) x (retention time period)

Why customer lifetime value is so important

  • It helps companies dedicate their resources more effectively toward retaining higher-spending customers
  • It’s essential when it comes to developing and implementing targeted, well-performing content and marketing plans
  • It helps companies better predict churn rates, defined as the rate at which customers stop buying products or services

How companies can boost their CLV

Corporate executives wishing to improve their CLV should encourage customers to purchase more frequently and to spend more on each purchase.

Doing this requires the following:

  • Ongoing communication. Communication includes both content development and customer feedback.
  • Frequent customer engagement. Companies should frequently reach out to regular customers through various channels, such as email, text, and snail-mail.
  • Brand loyalty boosts. Loyalty programs, such as frequent shopper discounts or “thank you for buying” coupons can help encourage customers to return, again and again.
What is customer lifetime value? CLV is an invaluable tool that can help a company better direct its marketing resources to the right target market. Learn more. #marketing Click To Tweet

About the author

Amy Sorter

Amy Sorter is an award-winning journalist, copywriter, and principal of The WordSorters. She focuses on creating custom, highly engageable content in a variety of formats for non-profit organizations, small businesses, and Fortune 500 companies.

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