How To Calculate Customer Lifetime Value (CLV) & Why It’s Important For Your Business!

The Data Talk experts are here to help you improve your customer lifetime value (CLV) metrics!

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Businesses of all sizes heavily rely upon recurring revenue models (i.e., ongoing subscriptions) to drive up their profits.

There’s also no denying how subscription-based companies have been put in a pretty tough spot in recent years as inflation. Additionally, other price hikes have caused consumers to be more cautious with their spending, which is why metrics like customer lifetime value (CLV) are so important for business leaders to understand.

Below we’ll be discussing what CLV is, how it’s calculated, why it matters, and how you can improve yours!

What Exactly is Customer Lifetime Value (CLV)?

Customer lifetime value refers to the net profit that a business receives from its average customer throughout the entirety of the customer relationship. This means it includes initial purchases, as well as repeat purchases like subscriptions.

When a business has good CLV ratings, it’s a solid indication that they’re obtaining great customer satisfaction and loyalty.

How is CLV Calculated?

What’s great about CLV is that it’s relatively easy to calculate when your business maintains access to the right data—which is something our team is always happy to help you with.

Here’s the basic formula for calculating CLV:

CLV = average purchase amount X average number of purchases (per customer)

Three Huge Reasons Why CLV Matters For Your Business

When your CLV metrics are high, it shows that your company is exceeding customer expectations and providing opportunities for customer loyalty. This essentially means that your customers are continuously coming back to your business, as opposed to your competitors.

Taking good care of your CLV rating can pay huge dividends over long periods of time, and below are three important reasons why this metric matters for your business:

1. High CLV Means High Customer Loyalty

Increasing your CLV can substantially boost your company’s profits because just a 5% increase in CLV can likely lead to 25% more profits (or more). Loyal customers tend to spend much more as compared to new customers, and your repeat customers will typically spend their money with you—instead of your competitors.

Loyal customers also typically lead to referrals and other word-of-mouth marketing, as well as great online reviews and social media sharing. All of this can seriously add up when it comes to your company’s recurring revenue!

2. Churning New Customers is Expensive

When your company relies upon a subscription-based business model, customer retention truly is everything for your long-term success.

It costs upwards of seven times more money to acquire new customers as compared to retaining existing clientele, and upsells and cross-sells can also significantly contribute to your revenue when you’re marketing toward loyal customers.

3. Helps You Identify & Find Your Company’s “Best” Clientele

Every industry is becoming increasingly more competitive each year, which is why it has never been more important for companies to understand who their ideal customers are.

Pursuing potential customers who are likely interested in your products/services will go a long way to decrease your acquisition costs and increase your customer lifetime value.

Three Tips To Increase Your Company’s Customer Lifetime Value

The main strategy to keep in mind when it comes to increasing your CLV rating is to continuously make efforts to help your customers tangibly understand the values of their subscriptions.

The following strategies can help:

1. Offering Exclusive Deals To Loyal Customers

Many businesses will offer loyalty perks to their subscription customers, which includes some of their best deals going to existing customers.

It’s always difficult to get a customer back once they’ve decided to move on to one of your competitors, so offering your loyal customers upgrades and attractive discounts can make them feel like they need to maintain their subscriptions.

2. Carefully Listen To Your Customers

It’s also absolutely critical that you listen to what your customers are saying via online reviews and social media platforms. Many businesses don’t monitor these channels enough (or take them seriously), which can be sort of like disregarding a treasure trove of information.

Most people like it when companies respond to their online reviews, and this can be increasingly more important when you receive a negative review. Being polite and courteous to all of your customers can make your loyal customers feel better about staying with you for the long-term future.

3. Meeting Your Clientele’s Changing Needs

There’s no denying how your customers will continuously be changing their needs, and serious businesses need to identify and meet these needs on a regular basis. This also means that you should be keeping tabs on what your competitors are doing when it comes to their customer loyalty strategies as well.

Offering renewal discounts and low-priced options can make all the difference when it comes to retaining or losing customers!

Contact Data Talk To Learn More About Improving Your Customer Lifetime Value!

Data Talk is a leading telecom provider based in Columbus, Ohio. Our team supports businesses of all sizes with their most important telecom strategies, which include maintaining crucial metrics like your customer lifetime value ratings.

Reach out to us online or call us at 614-784-7100 to get in touch with our industry specialists and ask us about improving your company’s CLV!