Customer lifetime value (CLV) is the most important metric for measuring the profitability of your business. It highlights the profit potential of your customers and how much money they will spend over their lifetimes with you. Customer lifetime value takes into account both the cost savings that result from repeat purchases as well as any future revenue they might generate if they become loyal customers who buy more expensive products or services than others in their category.
There’s been a lot of buzz around the customer lifecycle and its value in recent times. SMBs implementing CRM software to deliver superior customer service are now more focused on getting customer lifetime value in order to create a strong brand impression. In the age of rapid digitiazation, companies are relying more on emotional connection with the customers, which increases the brand recall. At the same time, staying updated about your customers’ needs and preferences help you deliver true value and nurture them throughout their lifecycle.
But, before that, here’s a look at what Customer Lifecycle values are.
Customer lifetime value (CLV) is basically a metric ( a parameter) of measuring and evaluating the ROI generated from the marketing efforts made to acquire a customer over their lifetime. The amount of revenue a customer gives to a brand during its lifetime ( through direct purchases as well as the referrals) is the customer lifetime value.
Here’s the formula for calculating CLV
The formula CLV = TR divided by N indicates the approximate amount of Revenue you can expect from an individual customer in a given period of time (N). Accordingly, the more your average order size is, the more this value becomes. But how to increase the order size? Here comes the role of a CRM Software that helps SMBs to reach out to the larger audience on an emotional plane by providing personalized service. This impacts on increasing the annual CLV or customer lifetime value. When calculating your annualized revenue per customer (ARPU), take into account both ARPPU and CLV calculations.
How CRM Software affects customer lifetime value?
The biggest advantage of implementing a CRM software is to increase the customer lifecycle value . A CRM system helps improve the CLV mainly because of the following factors.
- Implementation of an effective CRM system, which allows companies to better understand their customers and provide them with more value in return; and
- Measuring this value more accurately through analysis and measurement tools that use data from multiple sources.
How can companies increase customer lifetime value?
Increasing the customer lifetime value is not an overnight affair. Neither can you acquire a large volume of customers almost instantly. In fact, your potential customers need continuous nurturing before they choose you to be their very own brand. Here, your CRM system has a crucial role to play. It can help you do this by allowing you to learn more about your customers’ needs, goals and preferences. When you have all the key data that will help close the gap between what customers say they want and how much they actually spend with you.
You may also want to consider how long your current customers have been using your products or services in order to see if there are any trends that indicate a relationship could be worth investing in further down the road. For example: If one of these high-value prospects has been a loyal customer for 10 years but recently changed their mind about continuing their relationship with Zappos (the online shoe retailer), then perhaps there’s room for improvement around other areas like product selection or delivery times before renewal decisions are made again next year!
Customer Lifetime Value (CLV) impacts your business profits
As already mentioned, Customer Lifetime value or CLV is the total revenue generated by a customer over the lifetime of their relationship with your business, and it can be calculated using data about how often customers come back, how much they spend each time, and how long they stay with you.
The formula for calculating CLV looks like this:
- Total Revenue = Lifetime Spending x Repeat Business Rate x Frequency
Wrapping Up
While a Enterprise CRM software does not have the direct impact on increasing the customer lifecycle value or CLV, it helps sales managers and customer support managers to strategize their business plans in such a manner that it impacts the CLV. The CRM effect on CLV shows us how customer data can be used and why CRM software has become so popular for businesses of all types. We hope this article was helpful and informative for you!
