If you’re focused on your organization’s long-term growth, you can’t afford to ignore customer lifetime value (CLV). Customer lifetime value estimates the revenue you expect a client to bring to your company over time. When used appropriately, it will help you make critical business decisions designed to retain customers while still attracting new ones.
Making improvements to your customer lifetime value is an excellent way to improve your organization’s long-term chances of success.
If clients continually provide you with an income stream, you won’t fall into the trap of always trying to attract new customers. Instead, you’ll reap the benefits of a solid customer base that likes what you offer and will continue to buy from you.
There are a few key ways to enhance your organization’s customer lifetime value. Let’s look at them.
Most organizations have loyal customers who continuously purchase from them whenever they need their products or services. For instance, a hair salon may have a variety of customers but a select few who regularly schedule appointments according to a set schedule.
The hair salon would do well to understand what attracts those clients and develop marketing strategies that bring in similar ones.
For example, if stylists are known for being highlighting experts, the salon could continually share before and after pictures showing the transformation they give their customers. People looking for superior highlights will gravitate to the salon as they learn more about their services.
Once you know your top clients, you can focus on attracting them. Over time, your customer lifetime value will continue to improve.
Most businesses offer various products and services, and some may be cheaper than others. You’ll likely see higher profits from customers who buy high-end products rather than more affordable options. However, that isn’t always true — clients who often purchase many inexpensive products can also be viable long-term revenue sources.
You can decide which type of customer is best for your organization by assessing your client base.
For instance, if you run a low-end pizzeria specializing in take-out and delivery, your target market will likely be low- and middle-income customers who want to save time making dinner. They may visit your pizzeria several times a month, becoming a viable stream of long-term revenue you can forecast.
Most customers won’t stay forever, no matter how much they love your company. External factors like moving to a different area, major life changes, and economic issues can all impact whether a client continues to frequent your business. However, internal factors, like the quality of your products and services, also play a significant role.
Companies with a low customer lifetime value are wise to investigate the reasons. To do so, they can ask for customer feedback. Typically, customer feedback will uncover some trends that management should pay attention to.
For instance, if clients regularly note that the products they receive break or that the customer service is abysmal, those are both issues that the company can work to improve. Once the required changes are made, the company can try to retarget customers who left and retain the ones they continue to have.
When customers like your company, they’re likely to share their experience with their friends and family, so why not give them an extra incentive? A customer referral strategy can be just what you need to boost your retention efforts without a lot of expense.
You can reward clients who promote your business to others with exclusive discounts, better perks, or some other benefit. If their recommendations lead to more sales, you’ll quickly recoup the cost while expanding your business and increasing your customer lifetime value.
That extra boost can be all you need to retain customers for additional months or years. You can extend the benefits by making your referral strategy permanent. Over time, your revenue will continuously grow, leading to a more extensive client base.
The secret sauce for any successful long-term business is customer retention. When clients like what you offer, they’ll continue buying from you. If they don’t, they’ll move on and probably share their experience with others. Focus on your customers’ needs to maximize your chances for long-term growth.