Customer lifetime value (CLV) is the value a customer has to a business over the long term. Companies can use formulas to calculate CLV and use it to plan marketing campaigns, develop customer policies, and identify valuable customers. Loyal customers lead to referrals and help businesses expand. CLV is also important for budgeting and can be estimated using tools by marketing consultants and departments.
Customer lifetime value (CLV) refers to the value a customer relationship has to a business over the long term by looking at how much money customers will spend over the duration of their relationship with the business. There are several formulas that can be used to calculate CLV. Companies interested in developing a long-term marketing plan can use this metric in planning marketing campaigns and developing customer policies.
When thinking about customer relationships over time, companies think in the long term. Cultivating loyal customers who will either stay with a business or return to it for repeat business is beneficial to a business as it ensures that they maintain a large customer base. Loyal customers will also lead to referrals for new customers. This will expand the company’s customer base and help it expand, offer more products and services, and develop.
When calculating CLV, companies think about how much a customer is likely to spend with the company over time, given current buying patterns, the industry the company is in, and other factors. For companies that offer services and products on a subscription basis, this calculation can be straightforward. In cases where customers buy spurts or when things are needed, it can be a little more challenging to project spend over the life of the business.
Companies can look at the CLV on demographic data as well as on specific customers in order to identify the most valuable customers for the company. Overall CLV is also an important consideration when it comes to budgeting. Businesses must think about how much they are willing to spend to attract and keep customers. If a business needs to spend a lot of money to attract a customer through advertising, promotions, and other techniques, the spending may not balance with the customer’s lifetime value, making it a poor use of the company’s budget.
Marketing consultants and members of marketing departments have several tools that can be used to estimate CLV and make other predictions and calculations about customers. This data can be applied to the development of long-term marketing plans as well as policy implementation. Policies can range from training employees to offering incentives to people who are considering canceling or suspending their subscriptions to requiring employees to follow a defined series of steps when they encounter customer complaints.
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