Customer lifetime value (CLV) is one of the key stats likely to be tracked as part of a customer experience program. Find out what it means and how to measure it
Essentially, CLV is the total worth to a business of a customer over the whole period of their relationship. It’s an important metric as it costs less to keep an existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth. If the CLV of an average coffee shop customer is £10,000 and it costs more than £10,000 to acquire a new customer (advertising, marketing, offers etc.) the coffee chain could be losing money unless it pares back its acquisition costs. Knowing the CLV helps businesses develop strategies like these to acquire new customers and retaining existing ones while maintaining their profit margins. CLV is distinct from the Net Promoter Score (NPS) that measures customer loyalty and CSAT that measures customer satisfaction, because it is tangibly linked to revenue rather than a somewhat intangible promise of loyalty and satisfaction.
How do you measure CLV?If you’ve bought a £40 Christmas tree from the same grower for the last 10 years, your CLV has been worth £400 to him. But as you can imagine, in bigger companies CLV gets more complicated to calculate. Many companies shy away from measuring CLV, citing the challenges of segregated teams, inadequate systems and untargeted marketing. When data from all areas of an organisation is integrated however, it becomes easier to calculate CLV. CLV can be measured in the following way:
- Identify the touchpoints where the customer creates the value
- Integrate records to create the customer journey
- Measure revenue at each touchpoint
- Add together over the lifetime of that customer