Customer Lifetime Value | CLV: CLV Definition & What is CLV?

Nicole Georgiev
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    A business owner has a lot of metrics that they need to keep up with in order to run a successful business. These metrics include net profit margin, customer retention, customer acquisition, sales revenue, and customer lifetime value (CLV). 

    Not following these metrics can be dangerous for your business because they help you stay on track to grow your business. Without them, you may run into unsuspected surprises. 

    One of the most important business metrics to follow is customer lifetime value. It provides businesses with sight into what they can expect from average customers during business relationships. 

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    Customer Lifetime Value Definition

    The definition of customer lifetime value is the measure of the total revenue a business brings in from a customer during the time they’ve done business with the company. The ideal way to measure CLV is by analyzing the total average revenue generated by a customer and the total average profit. 

    Each metric gives businesses insight into how customers interact with them and if the current marketing strategy is working as expected. To get a more in-depth look at these metrics, it’s best to break down the company’s customer lifetime value by quartile or another segmentation of customers.

    This way, you can see what’s working best with your high-value customers. As a result, you can work on replicating that success across the entire customer base. 

    Key Takeaway: Customer lifetime value is a metric that measures the average revenue customers generate over the lifetime of their relationship with the company. It provides insight into what is and isn’t working for your business.

    Why Is Customer Lifetime Value Important for Businesses?

    Customer lifetime value is important for businesses because they can understand the value each customer provides to their business over the lifetime of the relationship. By understanding the customer’s experience, you can understand the key drivers of customer lifetime value.

    CLV is an important metric to use when your business has a multi-year relationship with a customer. These relationships provide a great opportunity to detect early signs of attrition. For example, customers not spending as much as they used to at your restaurant. 

    Three reasons why CLV is important for businesses: 

    1. Businesses can improve only what they measure. Starting to measure customer lifetime value and understanding each component will allow you to improve different business strategies. These strategies include restaurant marketing strategies, pricing, sales, customer acquisition strategy, and guest retention strategies. 
    2. Chance to make better decisions on customer acquisition costs. As a business, you can increase or decrease spending based on what you earn from a standard customer. Your customer acquisition cost will help you maximize profitability and attract the right customers. 
    3. Improve forecasting. Customer lifetime value forecasts are useful for making future decisions based on inventory, production capacity, and staffing. These include inventory forecasting strategies, demand planning, and calculating labor cost. This way, you can keep up with demand and not overspend or underspend. 

    6 Ways To Improve CLV

    The main purpose of CLV is to develop a long-lasting and positive connection between your business and your customers. This makes it necessary to improve your customer lifetime value to care for those customer relationships. 

    Six ways to improve CLV include:

    1. Invest in Customer Experience

    Store visits, purchases, contact center queries, advertisement exposure, and product use are all part of the customer experience. They’re also part of the connection that the customer and the brand have with each other. 

    To improve this experience, the business will benefit from using a customer experience program. This will allow them to listen to, monitor, and change different aspects of the experience to ensure a positive and long-lasting improvement in how customers feel about them. 

    2. Provide Seamless Onboarding

    The customer experience usually begins once the potential customer enters your business. This can be online for an eCommerce business or at your brick and mortar location. 

    However, the customer experience doesn’t end once the customer walks out of the store or exits the browser. In fact, it continues after the purchase. This is why your business’s onboarding process should be optimized for your customers and their needs. 

    A seamless onboarding process will allow employees to personalize the shopping experience for customers. It will also help communicate the extra value that your business provides to customers as a priority. 

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    3. Start a Loyalty Program

    Many businesses offer loyalty programs for their customers. This can include a restaurant loyalty program. These programs typically provide incentives to customers for returning to the business by offering them discounts or benefits for doing so.

    The businesses that use these programs tend to use loyalty cards, apps, or a points system where customers can accrue points when making purchases. This is also a great customer retention strategy. 

    4. Reward Loyal Customers

    When it comes to customer experience management, it’s important to keep your customers happy. One way to do this is by recognizing and rewarding your loyal customers. 

    If you have a customer management program, chances are you’ll already have insight into the customers that have the best customer lifetime value. This insight can provide you with details on how to nurture your relationships with those customers by using special offers or target marketing techniques. 

    These tactics can recognize the customer’s loyalty. Examples of this kind of recognition include offering top-tier benefits within your loyalty program, offering free overnight shipping, or providing exclusive access to new releases. 

    5. Utilize Social Media

    These days social media is crucial for customer communication and for customers to learn about your brand. You can gain the trust of your customers through social media by quickly and emphatically utilizing your social media platforms. This includes responding to customers through direct messages and mentions. 

    6. Offer Omnichannel Support

    Each customer will have a specific preference as to how they engage with your business. This is why your support channels should support this. 

    It’s important to research your customers and their preferences instead of offering a support channel you assume they’ll be interested in. You may also consider getting customer feedback on frontline interactions and self-service options in order to provide excellent customer experiences through omnichannel support. 

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    Frequently Asked Questions About CLV

    Customer lifetime value comes down to a number; however, understanding this number and the different parts of CLV will allow you to test multiple strategies. This way, you can determine what works best for your business and, more importantly, your customers.

    To better understand CLV, read the following commonly asked questions:

    What Does CLV Mean?

    CLV stands for customer lifetime value, and it refers to the total amount of money a customer is expected to spend at your business or purchasing your products during your business relationship. It is an important metric used in many businesses including those in the restaurant industry and the hospitality industry

    What Is a Good CLV?

    A good CLV will depend on your business, but it’s ideal for it to be within the range of 3-5 times your customer acquisition cost. For example, if you spend an average of $100 acquiring a new customer, you should strive to have a CLV of at least $300. To calculate CLV, use the customer lifetime value formula.

    How Do You Manage CLV?

    Businesses can manage their CLV by investing in marketing tactics such as upselling, cross-selling, loyalty programs, omnichannel marketing strategies, referral programs, and feedback initiatives. These are ways to encourage long and profitable customer relationships. 

    Why Is Customer Lifetime Value Important for a Business?

    Customer lifetime value is important for business because it allows you to make strategic and informed decisions based on how long customers tend to purchase from you and spend on your business. CLV is a metric that informs businesses of their customer acquisition and retention strategies, the quality of their products, and customer service

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