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Tracking Customer Llfetime Value (CLV): How to Retain High-Value Buyers?

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Nedina Gjorgjieva
Date
3rd July, 2024
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7 minutes
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A store’s customer lifetime value is a crucial insight into the long-term profitability of their business relationships. 

By calculating CLV, you're not only assessing the immediate worth of a customer but also their potential future contributions to your store’s revenue. 

The data from the metric allows you to focus your efforts more effectively and invest in relationships that offer the greatest return over time.

Today, we will not only clarify why CLV is pivotal for business success but also provide actionable strategies to cultivate high-value buyers and proven methods to improve CLV.

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What is the customer life value?

Customer lifetime value (CLV) is an essential metric that enables businesses to understand the total worth a customer contributes throughout their entire relationship with the company. 

CLV is crucial for shifting a business’s focus from short-term transactions to cultivating lasting relationships. 

By analyzing historical purchasing patterns—how frequently customers buy, their typical shopping behavior, and spending habits—companies can pinpoint high-value customers, project future earnings, and tailor marketing strategies accordingly. 

How do you calculate customer customer life value?

Calculating customer lifetime value might sound tricky, but it’s all about understanding what each customer brings to your business over time. 

To measure CLV, apply the following formula:

CLV = (Average order value) x (Purchase frequency) x (Average customer lifespan)

Here’s a breakdown of what each component represents and how you can calculate them:

1. Average order value:

  • Calculate it by dividing the total revenue by the number of orders over a certain period of time. 
  • Example: If you made $10,000 from 200 orders, your AOV is $50.

2. Purchase frequency:

  • Determine how often customers purchase within a given time frame.
  • Example: If 200 customers made 600 purchases in a year, the purchase frequency is 3.

3. Average customer lifespan:

  • Calculate how long, on average, a customer continues to buy from you.
  • Example: If customers tend to stay with you for 5 years, the ACL is 5.

Combining these figures—$50 x 3 x 5—yields a CLV of $750, indicating each customer’s value over time. 

Why is customer lifetime value important?

Understanding the importance of customer lifetime value is fundamental for businesses aiming to boost their profitability. 

Here’s how calculating your store’s CLV can help your business endeavors:

  • It helps measure customer loyalty: By analyzing CLV, businesses can pinpoint their most loyal and profitable customers—those who return frequently and spend more over time. This data is crucial for crafting targeted marketing and retention strategies to nurture these valuable relationships.
  • It helps reduce customer acquisition costs: Focusing on enhancing CLV can lead to reduced acquisition costs. Rather than constantly seeking new customers, investing in existing customers who already trust your brand is much more cost-effective.
  • It helps refine your marketing strategies: CLV data provides insights that help businesses allocate marketing budgets more efficiently. Focusing efforts on high-CLV customers ensures that resources are spent where they yield the highest returns.

Best strategies to improve customer lifetime value

Personalization

Personalization is transforming how businesses enhance customer lifetime value (CLV) by leveraging customer data to customize experiences, recommendations, and communications

This approach goes beyond making customers feel valued; it strategically fosters repeat business and builds loyalty. 

For instance, targeted emails that align with a customer’s previous purchases or browsing habits can dramatically boost engagement. For instance, if a customer buys running shoes, follow up with an email showcasing complementary products like sports socks or breathable jackets.

Similarly, by employing data analytics, you can further personalize the online shopping experience by suggesting items based on past interactions, much like Amazon’s “… products customers bought together …” feature. 

customer lifetime value

These tailored strategies ensure that customers see the most relevant products, significantly increasing the chances of purchase and customer retention.

Customer loyalty programs

Loyalty programs are a powerhouse tactic for boosting CLV by rewarding repeat customers with perks like points, discounts, and special offers

The benefits are clear:

  • increased repeat purchases from customers who appreciate rewards
  • exclusive offers that make customers feel like VIPs
  • early access to products that heighten a sense of exclusivity.

Loyalty programs do more than encourage frequent purchases, however; they make customers feel valued and special, which is essential for building lasting brand loyalty. 

Take as an example the rewards program from the online boutique LIVELY, which has effectively harnessed the power of a loyalty program. 

Upon signing up, customers receive 100 points, equivalent to a $10 discount, kicking off their engagement with immediate value. The opportunities to earn more points are abundant, including actions like leaving a review, following the boutique’s social media accounts, subscribing to their newsletter, or making additional purchases

customer lifetime value

Based on their spending levels, customers can qualify for one of three membership tiers, each offering benefits like early access to sales and free shipping.

Exceptional customer service

By going above and beyond to resolve issues quickly and exceed expectations, you foster brand loyalty and increase the likelihood of customers sticking around. 

Offering round-the-clock support ensures that customers can reach you whenever they need help, which is crucial in retaining high-value buyers. 

Providing multiple communication channels like chat, email, and phone meets customer preferences and makes it easier for them to get the help they need. 

Proactive problem resolution, using data analytics to predict and address potential issues before they arise, shows that you care about your customers’ experience. 

Small gestures, such as thank-you or follow-up emails after resolving an issue, can leave a lasting positive impression. 

Upselling and cross-selling

Strategical upselling and cross-selling are another pair of powerful tactics that can significantly boost the overall value each customer contributes throughout their relationship with your business. 

By implementing upselling, you encourage customers to consider a higher-end product than initially planned. For example, if a customer selects a basic polyester t-shirt, you could suggest an upgrade to a more expensive cotton t-shirt for a modest price increase.

customer lifetime value
Warby Parker

Similarly, cross-selling involves recommending complementary products that enhance the main purchase. For instance, when a customer buys a dress, proposing additional accessories like earrings, bags, or shoes during the checkout process not only enriches their shopping experience but also increases the average order value. 

customer lifetime value
Bloomingdale’s

Feedback loops

Listening and responding to customer opinions through various feedback mechanisms can lead to significant improvements in your store’s revenue. 

This could be through post-purchase surveys included in follow-up emails, feedback forms readily available on your website, or social media polls.

All of these methods can help you gather direct insights from customers, showing them that their feedback is valued and considered in the decision-making process. 

Creating a close community

Engaging with your audience on social media platforms like Instagram, Facebook, and X, sharing user-generated content, responding to comments, and organizing interactive activities such as Q&A sessions can foster loyalty, and with that more sales. 

customer lifetime value

Online forums or dedicated spaces on your website allow customers to connect and discuss your products, further enhancing community feeling. 

Moreover, hosting in-person events like product launches and workshops provides opportunities for direct interaction, which can solidify customer relationships and encourage long-term loyalty. 

Quality and value of products

When customers trust the quality of what you offer, they are more inclined to return for repeat purchases. 

For example, if your store specializes in selling clothing and accessories, providing items from respected designer brands instead of cheaper brands can elevate your store’s reputation and attract a more discerning clientele who value quality and are willing to spend more.

Maintaining high standards not only helps in retaining customers but also fosters long-term loyalty. 

Additionally, happy customers often become brand advocates. Their referrals can naturally expand your customer base and increase sales without the need for direct marketing efforts. 

Conclusion

Using insights from measuring CLV enables you to refine your marketing strategies in a way that resonates more effectively with high-value customers. 

This targeted approach not only maximizes the return on your marketing investments but also boosts customer satisfaction by delivering more personalized experiences.

It can also help in transforming one-time buyers into long-term customers who are more likely to advocate for your brand and contribute to a positive word-of-mouth effect.

As you continue to refine these strategies based on CLV, you effectively build a business that is as resilient as it is customer-centric, ensuring a brighter future for both your brand and your customers.

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