What is Customer Lifetime Value

Customer Lifetime Value is an important concept which you need to understand if you want to be successful in any online business. In fact, it is important in any kind of retail business, whether online or offline.

I recorded this video as part of our Traffika TV series about Understanding Customer Lifetime Value and wanted to expand on the idea in this blog.


What is Customer Lifetime Value?

Simply put, Customer Lifetime Value is understanding what your customer is worth over the lifetime that they are your customer. You shouldn’t look at him or her as just an individual sale, you should also take into account repeat sales as well as the possibility that they will give you referrals.

In order to illustrate this, let us look at the basic sales process. For example, if you have a store for window curtains, the basic outlook would be to just wait for buyers to come on an individual basis and keep your fingers crossed hoping that enough customers will come for you to cover costs and make some profit.

Then if that does not happen, you might create advertisements in whatever media you choose. Of course this will most likely bring in more customers and this new flow of customers will cover all costs along with the additional advertising budget.

The thing is, after your customers leave with their curtains, you will no longer be able to profit from them. They are already happy and you are not sure that they will even remember the store they bought their curtains from.

In order to get the most out of your customers and your marketing efforts, you have to consider your Customer Lifetime Value. What this implies is that you should endeavour  to make sure your customer is happy enough and that they will become a repeat customer and spend more in your store plus refer friends to your store as well. How do I do that, you ask?

There are many ways you can do this and each will be unique to your business, location, service or product. However, below are a 4 ideas how you can have a ‘customer centric’ outlook and start to offer them additional services. Lets use our curtain store as and example of additional products or services related to the curtain they bought.

  1. You can offer a colour guide or design service, a fitting service, a trimming service, a custom made option as well as a cleaning service for their curtains.
  2. Specialise in curtains for caravan, boats, homes, offices and anywhere else a curtain is needed.
  3. Have customers sign up for a newsletter or join you on Social Media to be able to offer them other services and promotions. Once you have their contact information or they join your social media networks online, you will be able to notify them of future promotions and they will be able to spread the word for you.
  4. Encourage them to refer others by creating a referral program or incentivise repeat business by having a loyalty program.

At the centre of all this is providing outstanding customer service so that you stand out from the crown and customers will want to deal with you again and again as it is a pleasure to deal with you.

Get The Most Out Of Your Marketing Options

You are forming a relationship with your customers and therefore, over time, you will be able to find out just how valuable new customers can be for your business. This will also guide you to the right path when you are planning your marketing projects. It answers just how much you should spend on what kind of advertising and what kind of marketing activities you should choose. Considering the value of getting new customers versus the value of retaining a relationship with customers you have already satisfied.

Use our Customer Lifetime Value Calculator to compute what an average customer is worth to you, then you will be able to make safe assumptions on how much you should spend in advertising for new customers. If for example a new customer over time is worth enough to cover your advertising expense, all other expenses and provide some revenue at the same time, then you will no longer be reluctant to spend money investing in online advertising. This is a powerful insight for any business and a big ah ha moment for some. If you do not factor in the long term profitability of each customer, you will be deterred from investing the maximum optimal amount for your marketing efforts.

Thus, your business growth will be crippled since you are not able to reap as much as you should have.

To find out about how you can get started with an online advertising campaign to grow your business contact us or call 1300 853 597.

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