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What Is Customer Lifetime Value, How To Find Yours, & Why It Matters
What if you could see which customers are likely to purchase again- increasing organic sales, saving you expensive ad dollars, and even spreading brand awareness for you?! This is your Customer Lifetime Value.
What exactly is Customer Lifetime Value?
Simply put, CUSTOMER LIFETIME VALUE is the total worth that a customer has to your business for the entire duration of their relationship with your products/services, on average.
This article is going to explain, as briefly as possible, how your Customer Lifetime Value (or CLV, for short) can help your business grow successfully, and how to find out what your business’ CLV is!
Why is knowing your Customer Lifetime Value so important?
There are a LOT of perks and benefits this information brings to your business, but the main reasons a company wants to know what their CLV is are these:
🚀 You can increase your ORGANIC sales, free from additional ad spend.
Identifying trends among repeat customers helps you identify and strategically target more customers that more likely to become REPEAT buyers. You can also offer special incentives, coupons, etc to encourage more purchases, turning them into lifelong fans of your brand.
🚀 You can reduce your ACoS marketing costs.
ACoS (or Aquisition Cost of Sales) is how much advertising money it costs you to earn each NEW customer or sale. Knowing your CLV can help you to prioritize ads on products/services with higher odds of converting LIFETIME buyers over one-time buyers. (There’s more ways to reduce your ad spend as well, but this is the main one I’ll discuss for this post.)
🚀 You’ll increase your PROFIT margins, by default.
Since repeat buyers don’t have any additional marketing or customer acquisition costs (there’s that sneaky ACoS again), you get to keep more money in your pocket. It cannot be emphasized enough how much raising your profit margins can positively affect your business.
🚀 Your customer journey can be customized.
Seeing the trends in your repeat customers can help you find ways to give your buyers a better experience and increase brand loyalty.
If you find that a customer who purchases Pink Fizzy Flamingo Slippers is 3 times more likely to come back and purchase your matching Flamingo coffee mug, you can send an automatic email telling all your future slipper buyers how that coffee mug adds to their cozy vibe. VOILA- you’ve got another sale, for FREE!
🚀 Happy, loyal customers will be more likely to recommend your product or services, creating EVEN MORE brand awareness!
You know what they say- there’s no business better than referral business- because referral business is- you guessed it- FREE!
Not only is it an awesome feeling to see your customers happy and loving your business, but the added perk of growing your customer base for ZERO additional work is always amazing.
How do you find your Customer Lifetime Value?
Now that we’ve talked about WHY your CLV is so important, let’s find out what yours is?
There’s actually a few ways to do this, but we’re going to go over two of the simplest ways.
Method #1: How To manually calculate your customer lifetime value
This is actually the harder of the two methods, but I wanted to include it just in case you find it helpful. Don’t worry if this seems overwhelming, because method #2 is way simpler. *wink wink*
🚀 Step 1: Multiply the AVERAGE ORDER TOTAL
(How much money a customer spends per order, on average)
AVERAGE NUMBER OF PURCHASES PER YEAR
(How many purchases each customer typically makes a year)
🚀 Step 2: Take this new number
and multiply this by
THE NUMBER OF YEARS A CUSTOMER ACTIVELY PURCHASES YOUR PRODUCTS/SERVICES
(AKA how many years, on average, that a customer STAYS a customer)
Hint: It isn’t uncommon for most customers to purchase once, so this number might be 1 (for 1 year).
This is your Customer Lifetime Value!!
Knowing your Customer Lifetime Value is great, but what you’re REALLY going to benefit from are the insights you uncover during the process of finding your CLV.
(If you calculated your CLV manually, you’ve probably already noticed some trends among your buyers while you were digging for the information you needed above. If not, brace yourself- because I’m about to blow your mind!)
Here’s where method #2 comes in!
Method #2: Use our handy, dandy dashboard to find your CLV automatically (and get insights galore!)
You know me, I’m all about finding ways to make it EASIER to rock your business- and if data is involved, whooo, watch out! I’m a lady on a mission! 🤣
I’ve got a super cool dashboard, built in a FREE Google Spreadsheet, courtesy of our lead data analyst, Larry- to make this entire thing easy as pie!
🚀 Step 1: Snag our dashboard
Sign up right below…
🚀 Step 2: Add your customer data
You can read the instructions or watch the quick Loom video to learn how to add your sales data. It only takes a few minutes!
🚀 Step 3: Check out the awesome insights on the dashboard!
It would have been boring if we just gave you your CLV number and called it a day, so we added a bunch of cool insights for you, too!
I don’t want to go on and on about the dashboard’s epic coolness, but you can read more about the dashboard features here if you like.
Congrats, you’ve mastered the concept of Customer Lifetime Value!!
Now that you know what it is and how to use it to help your business- I feel like I should mention that this article barely taps into the many ways that your customer data can help you grow strategically. You can use it to make all sorts of data-driven decisions that boost sales, cut costs, and maximize every ad dollar!
Happy analyzing, my friend, and cheers to a more successful, less stressful business! 🥰
Hey, thanks for reading!
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