Do you know your Customer Lifetime Value? Do you even know what it is? Fear not, I will explain all in this blog…
What does Customer Lifetime Value mean?
Your customer lifetime value, often called CLV, simply put is the monetary value of a customer to your business. It is important to know so you can determine how much it costs to acquire a new customer and to understand how profitable your business can be.
How do you calculate the lifetime value of a customer?
The simplest formula for measuring customer lifetime value is
Average Total Order Amount * Average No of Purchases Per Year * Retention Rate = Customer Lifetime Value
Here are 2 examples of working out your CLV…
Example 1 – Fertility Reflexology
A customer comes to you for reflexology to help with fertility challenges as they would like to get pregnant.
They come for an Initial Consultation – £75.00 – they like what you are offering and so sign up for a 3-month package – 11 x weekly sessions @ £45.00 per session = £495 – They fall pregnant – yay!
You offer them a pregnancy package which consists of 8 x Monthly sessions @ £45 per session = £360 plus in the month leading up to their birth they have 4 x weekly sessions @ £45 per session = £180
They give birth to a healthy baby – yay!
You offer them a post-birth package of 4 weekly sessions 4 x @£45 per session= £180
Current Customer Lifetime Value for this customer is £75+£495+£360+£180+£180 = £1290.00
This figure may go up as they have decided they absolutely love the benefits of reflexology and so continue to come and see you on a regular basis. Their baby suffers from colic and so she brings her baby to you for baby reflexology. And so on
The cost of acquiring a new customer
As a business it costs you time and/or money to acquire a new client – maybe by investing in a website, getting a business mentor, flyers, business cards, time on social media, doing talks, great customer service, Facebook ads, google ads etc.
Now the above example may or may not be your average client lifetime value so you will need to do some digging into your average order price, the average times a client rebooks with you and how long they stay with your business to get accurate figures.
However, once you know your Customer Lifetime Value, if it is significantly higher than the figure it costs you to get that new customer, you know that your business is or can be profitable.
I would also highly recommend you work out how much each service/provide costs you to provide to the end user so you can work out how much true profit is achievable.
Example 2 – Florists
They initially buy a Florist’s Choice Bouquet – £30 from you for a friend. They were impressed and so they bought a Mothers Day Bouquet – £40 for her mum, again she was impressed by the quality and service. They send Sympathy Flowers – £25 to a colleague. They decide to sign up for your Spring Wreath Workshop – £75 and love the way you think about the flowers and design of the wreath. Total spend so far =£170
Their partner pops the question and so when they’re thinking about the wedding flowers, they instantly think of you
Bridal Bouquet – £150
Flower Crown – £45
3 x Bridesmaids Bouquets – £75 each = £225
5 x Buttons Holes @ £8 each = £40
2 x Ladies Corsages @ £10 each = £20
8 x Pew Ends @ £30 each = £240
2 x Pedestals @ £150 each = £300
Wedding Venue Flowers
10 x Table Centres @ £100 = £1000
1 x Top Table Arrangements @ £200 = £200
Cake Flowers @ £20
2 x Thank you flowers @ £30 each = £60
£30+£40+£25+£75 = £170
Wedding Flowers = £2300
So far your CLV for this client is = £2470
Benefits of knowing your Customer’s Lifetime Value
- You know which services/products your best clients buy most often and can adjust your marketing to encourage more of these sales
- You know where you need to spend your time and money marketing to get the best results
- You know which services/products are your most profitable
- You know how much you can afford to spend to attract new customers into your business and still be profitable.
- If your customers are not repeat buying from you and your CLV is low you can analyse why they are not repeat buying – are they not happy with the service/product, are they not getting the results they expected, are you not educated them on the benefits of the service/product before they buy. Once you know you can make changes to your processes to fix any leaking holes.
- It allows you to budget, whether on the cost of acquiring a customer retaining them
How to increase your Customer Lifetime Value
- Educate your customers on the value and benefits of Packages
- Offer great customer support before during and after the sale so they buy again
- Offer Loyalty schemes – think of coffee shops that offer a stamp for each coffee bought – buy 9 get 10th free
- Send regular Email Newsletters to your customers to remind them you are still in business and share your latest offerings
- Create packages that will genuinely help them with their problems and challenges. I offer Website Maintenance Plans and Website Content Plans so that my clients don’t have to worry about the tech side of maintaining their website.
- Offer subscriptions – think monthly box subscriptions, my dog Teddy has a monthly subscription for his food Butternut Box. I have a monthly subscription to Netflix. Hello Fresh offer subscriptions to help with what to eat each evening. Freddies Flowers offer monthly flowers subscriptions. Amazon are no offering One-Time Purchases or Subscribe & Save on lots of their products to extend the number of purchases you make
Summary of Know your Customer Lifetime Values
So in this blog, I have covered…
- What does Customer Lifetime Value means
- How to calculate the lifetime value of a customer
- Given you 2 examples
- Benefits of knowing your CLV
- How to increase your Customer Lifetime Value
I hope this has been helpful for you. I know stats and numbers aren’t the most exciting part of your business but concentrating on the ones that can make a big difference to your business is worthwhile.
If you would like any help with your CLV or any part of your Online Marketing toolbox, then please do get in touch