Knowing your customer lifetime value is essential to any business strategy. But what does customer lifetime value mean and how can you determine what a customer is really worth to your business?
The role of both marketers and managers is to provide an excellent customer experience. From a marketing perspective it’s easy just to look at the cost of gaining a sale and moving a prospect up the ladder of loyalty to become a customer.
But how do successful businesses take this further? They include customer lifetime value in their strategy.
What is customer lifetime value?
Remember the ladder of loyalty in a recent blog we wrote? Customer lifetime value is measured when we think about how we treat our customers and encourage them to regularly purchase from us.
Customer lifetime value is a prediction of the value a customer can bring to your business. Obviously some will be more valuable to you than others, and therefore it’s important to know which customers you should prioritise.
So, for example, if a customer were to stay with you for two or three years, regularly buying your products or services, what would they be worth to you? How much would you be willing to invest in marketing in order to win that customer? What would you do differently?
Determining what a customer is really worth
Selling more products or services to repeat customers brings greater profit, promotes customer loyalty and helps you grow your business. Your budget should reflect this as you direct time, effort and financial resource into encouraging these customers to a) spend more over their lifetime with your business and b) promote your business to others via word of mouth recommendations or testimonials.
To identify what a customer is really worth, you’ll need accurate data on their purchasing journey with you.
Firstly, check back on your frequent purchases and transactions and spot the customers who either spend more regularly or spend the most. Set a time period of say two to three years and discover their average spend. Are order values increasing?
From here you have the foundation for predicting how important this customer will be to you long term, and the products you need to be highlighting for promotion.
You’ll also be able to see which customers you should be prioritising your budget on in terms of tailor-made deals and discounts, loyalty packages etc.
As coaches we appreciate that assessing the lifetime value of your clients can be a daunting as well as time consuming task. However, it is a crucial business strategy and one which should never be overlooked.
If you’re struggling to analyse your data and are unsure of how to accurately predict the lifetime value of your customers, our team are readily available to help. Please feel free to get in touch, we’d love to hear from you.
