Customer Lifetime Value

Customer Lifetime Value

Customer lifetime value, in its simplest form, is expressed as the value that a customer generates for a company. In other words, it can also be described as the total investment in the customer in order to acquire or profit from a customer. If the customer lifetime value is too low, it means that the return from this customer is too low in relation to the investment. A high Customer Lifetime Value, on the other hand, means that the customer is being adequately rewarded for the investment.

Regardless of the industry, the most important asset for any company is its customer. A company without customers cannot be successful in the short or long term. For this reason, companies employ a variety of customer acquisition strategies. As part of customer acquisition strategies, metrics such as Customer Lifetime Value are needed to measure the cost of these customers to the company. These metrics provide important information about how efficient the company’s customer acquisition process is.

Was Ist Die Customer Lifetime Value?

How is the Customer Lifetime Value calculated?

The calculation of Customer Lifetime Value is important to determine how much money a customer has received for their investment. Various metrics need to be considered in the calculation. All of these metrics can be determined using digital marketing tools. In this context, Customer Lifetime Value can be calculated using the following formula:

Customer Lifetime Value = Customer Value * Profit Margin

As can be seen from the formula above, customer lifetime value is directly related to customer value. Therefore, in order to calculate the lifetime value, the customer value must first be determined. When calculating the customer value, the number of purchases and the average earnings per purchase are important.

If you explain customer lifetime value using an example, this concept is easier to understand. For example, if a customer makes 10 purchases and the average earnings per purchase is $1, the customer’s lifetime value is 10 * €1 = €10. If the profit margin of this business per customer is $2, the customer value is 10 * 2 = €20.

When calculating the profit margin, the customer’s costs must be subtracted from the sales made with the customer in order to acquire this customer. The margin is crucial for the calculation of the Customer Lifetime Value.

Warum Ist Der Customer Lifetime Value So Wichtig?

Why is customer lifetime value so important?

It is not possible to determine which customers are worth investing in without calculating customer lifetime value. In many cases, customers who make a large number of purchases and have a high average spend per purchase are preferred by companies.

At the same time, customer lifetime value is critical to marketing efforts. Marketing to customers with high lifetime value enables higher profitability in many cases. In addition, in some cases, companies must stop investing in customers that do not provide the desired Customer Lifetime Value.

Investing in a customer that does not provide a return on investment results in wasted resources. Therefore, it is necessary to determine both customer value and customer lifetime value and develop an appropriate marketing strategy.

Continuous measurements can improve your processes

Measuring customer lifetime value helps improve marketing processes. For example, campaigns for customers with high lifetime value can help them buy more products or services. On the other hand, marketing strategies can be changed when it comes to customers who are not performing successfully.

Vorteile Durch Eine Customer Lifetime Value

What benefits do you receive as a company from a Customer Lifetime Value?

The calculation of Customer Lifetime Value has several advantages. As with any marketing method, the main purpose of this metric is to increase the profit margin so that the company can earn more profit per customer. Therefore, customer lifetime value must be measured and reported on a regular basis. Here are some of the benefits you can achieve by measuring this metric.

You are able to increase the number of resales

Customer lifetime value is an important metric that measures the success of repeat purchases. In many cases, companies aim to sell more to existing customers rather than acquire a new customer each time. The main reason for this is that the cost of acquiring a new customer is higher than the cost of protecting an existing customer. Customers who also make recurring purchases have a high customer lifetime value in many cases. This means a higher profit for the company.

Reward customer loyalty

On the other hand, you can improve customer loyalty by focusing on customer lifetime value. As we mentioned earlier, marketing efforts that target existing customers are more cost-effective in many cases. You should support this trust because your existing customer already has trust in your company. By creating customer loyalty, you can achieve a higher profit per customer at a lower cost per customer.

Customer Lifetime Value Verbessern

In what ways can you improve customer lifetime value?

The measurement process will show you if the Customer Lifetime Value is not at the desired level. If you find such a situation, you need to implement a number of improvement strategies based on the data you have. Before you make improvements, you must first determine where the problem is coming from. You can determine which areas to focus on by identifying the root cause of the low Customer Lifetime Value.

Offer bonus programs for regular customers

If you don’t already have a customer loyalty program, a low customer lifetime value may be a good opportunity to do so. You can set up special discounts, promotions or a point accumulation system as part of the loyalty program. These applications will help your existing customers feel valued and continue to shop with you. At the same time, in many cases, your loyalty program investment will be much less than your advertising investment for new customer acquisition.

Focus on the customer experience

Another way to improve customer lifetime value is to focus on the customer experience. Improving the customer experience can generally be seen as a positive for your business. The same is true for increasing customer lifetime value.

Reward your best customers

Rewarding your best customers will help improve this metric, as a customer’s lifetime value is primarily targeted at loyal customers. Setting special discounts for your best customers is one of the reward mechanisms you can use to offer free shipping at a certain price or gifts on special occasions. Customers who receive a prize at regular intervals are more likely to buy your company’s products or services.

Use social media

On the other hand, you can also use social media channels to improve customer lifetime value. Nowadays, customers use social media channels to share their problems and suggestions. Therefore, companies need to monitor your social media channels regularly and actively. You can encourage customer loyalty by interacting with customers on social media channels. For example, your personal approach on social media channels can be a great way to improve customer lifetime value.

Customer lifetime value, in its simplest form, is expressed as the value a customer generates for a company.

The calculation of Customer Lifetime Value has several advantages.As with any marketing method, the main purpose of this metric is to increase the profit margin so that the company can earn more profit per customer. Therefore, customer lifetime value must be measured and reported on a regular basis. Here are some of the benefits you can achieve by measuring this metric.

Customer Lifetime Value = Customer Value * Profit Margin

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