Customer lifetime value is the value a customer pays for your company’s product during their lifetime. The source of long-term, sustainable profits for businesses comes from loyal customers because the customer lifecycle value is very high.
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Therefore, a business that wants to develop permanently, needs to have many, many loyal customers because they are the ones who bring long-term and sustainable profits to the business.
Table of contents
II. The formula for calculating customer lifetime value (LTV – Lifetime Value)III. How to increase customer lifetime value CONCLUSION
I. What is Customer Lifetime Value (CLV)
Customer lifetime value English name is customer lifetime value. Often referred to as CLV for short.
What is customer lifetime value?
It is the value of a customer that contributes to the profit of the business.
Customers with high lifetime value are loyal customers that bring long-term and sustainable profits to the business.
II. The formula for calculating customer lifetime value (LTV – Lifetime Value)
As mentioned above, customer lifetime value is also the revenue that customers generate during their lifetime.
Value of a customer’s life
The higher the LTV index, the more revenue customers bring to the business. LTV index depends on many different factors such as:
Marketing, Sales, Customer Care
There are 2 ways to calculate customer lifetime value (Customer Lifetime Value)
Option 1: Historical Lifetime Value
You can calculate the total profit from a client’s trades using the formula:
CLV = (Trade 1 + Trade 2 + Trade 3 + …Trade n) x Average Margin
Option 2: Predict customer lifetime value
Lifetime value prediction is more complex than historical lifetime value calculation.
It is an algorithm based on existing data. Eg:
Customer lifetime value is always the net profit of the sum of all future revenue streams for a customer.
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In fact, the calculation formula is much more complicated:
LTV = (T x AOV) AGM) ALT
T: average number of monthly transactions AOV: Average value of orders ALT: Average age of customers (by age) AGM: Average profit margin
III. How to increase customer lifetime value
One of the effective ways to increase LTV is to increase customer satisfaction. There are studies that show:
“A 5% increase in customer retention rate increases profits from 25% to 95%”
Another similar study found:
“Acquiring a new customer costs 5-7 times more than retaining an existing customer”
To increase customer lifetime value, you need to have a maximal strategy for CLTV (Custom Life Time Value).
The principle of CLTV is quite simple, exactly like the other basic principles of marketing:
Attract (Attention)Make customers interested (Interest)Inspire desire to use the product (Desire)Create more trust for customers (Confidence)Make customers without hesitation (Decide)Action
7 steps, 6 steps AIDCDA listed above, and the last step that 70% of businesses have not really done well is to make customers feel satisfied (Satisfaction).
Why is Satisfaction so important? Because the essence of selling is to make the customer feel happy. Happy to be taken care of, happy to buy products. In short, all behavioral chains leading to customer satisfaction are attributed to increasing the value of customer service.
In addition, Here are 3 ways to increase customer satisfaction:
3.1 Customer Service Optimization
Customer service includes all interactions before and after using the service. Marketing staff can use LTV metrics to determine which customer segments bring the most value to the business. From there, come up with appropriate strategies to create a relationship with that segment.
Customer Lifetime Value, Perfect Customer Service
3.2 Building a personalized relationship
Building a personal relationship is what sets your business apart from the competition. There is one thing that you can always say “every customer wants to be treated differently”.
Build personal relationships
Therefore, you can rely on information collected from customers (behavior, profile, transaction history, etc.) to apply personalized services to score points with customers.
3.3 Strengthen customer loyalty
If you want to increase customer lifetime value, recognizing customer loyalty is extremely important. Businesses can organize loyalty programs to entice customers to return as well as create more relationships.
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Build loyal customers
One thing to keep in mind about loyalty program rewards is that they must be tailored to the needs of the guest. When the programs If customers are encouraged to be well organized and implemented, they can say “they are free advertisers for businesses” by expressing their impressions and introducing PR about your brand. Eg:
XYZ washing machine is really good, ABC rice cooker is good,…
Through this article, CRMVIET hopes that you have had a more general view of customer lifetime value in order to have appropriate strategies.