Knowing customers is an absolute must for any business. Knowing how much money a customer spends with a company on average during his or her lifetime is an extremely convenient situation. The Customer Lifetime Value, also called CLV in short term can be used to determine this value. This provides numerous opportunities to determine future budgets for new customer acquisition or existing customer care.
The value of the customer
The customer is king. This phrase is well known and continues to be a top priority in today’s world. After all, a satisfied customer is still a good customer, and will continue to buy products from the company to which he is loyal and devoted. After all, in the end, it is the customers who determine the success and failure of a business.
The importance of CLV
Customer Lifetime Value is an indication of an investment in the customer base.
Basically, what matters first is how much money the customer brings to the company through purchases and the acceptance of services. In addition, it depends on the number of investments. The mixture of these gives the value of a customer. An enterprise orients itself at this and should not spend in a functioning economy more than the average customer brings. (Ambien)
Then it would be a financially bad business. Thus, the CLV can be described as an indicator of profitability.
It can also be used to cluster the value of individual customer groups if several products from different segments are offered.
In order to describe this indicator even better, examples are suitable, on the basis of which the importance can be recognized.
The calculation always follows the same pattern: the average value of a purchase * the number of purchases made by the customer per year. The duration of the relationship with the customer is also multiplied.
If a customer is prepared to buy a high-quality product several times a year and another customer is keen to obtain the low-priced products in parallel, customer 1 is always to be defined as more valuable in terms of quality.
Qualitative insights can also be accessed for Shopify customer lifetime value (CLV).
Interpreting the CLV from the business perspective
Thanks to the insights gained from the calculations, the following questions can be answered:
- How much can be invested, profitably considered, to acquire a customer of the same segment?
- Which products have the highest share in the company’s profitability?
- Who are the most profitable customers?
Since, on average, between 60 and 70 percent of the product range is sold to existing customers, the initial focus should be on maintaining existing customers and thus increasing their value.
Increasing the value of the customer
But what is involved in a coherent customer relationship? In addition to basic satisfaction with the product, what is needed above all are functioning processes.
This starts with returns processes, which should be manifested in the company. If returns can be made free of charge and are not associated with any problems, the customer will be grateful.
If one is honest and transparent, a healthy relationship develops. The end customer knows that he can rely on the company and the services it offers.
If you also take advantage of the opportunity to reward loyal and long-standing customers with bonuses, a company has a golden future ahead of it.