Why is Customer Lifetime Value Important?

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Did you know that it is easier to sell to an existing customer than it is to acquire a new one? Because of this, it is vital that your customers are satisfied with your service or product so you can retain them long enough to regain the investment needed to initially earn their business. One of the best ways to avoid customer churn that leads to struggling for new business is to measure customer lifetime value (CLTV). This will help you keep highly valuable customers, resulting in increased revenue over time.

How to Calculate Customer Lifetime Value

To find your customer lifetime value, you calculate the average purchase value and then multiply that number by the average number of purchases to determine customer value. Once you calculate the average customer lifespan, multiply that by customer value to determine customer lifetime value.

The Importance of Understanding your Customer Lifetime Value

There are many reasons why understanding your CLV is vital, including:

Increasing CLV can lead to boosted revenue over time

The more value a customer brings to your company during a lifecycle, the more revenue your business earns. Because of this, tracking and improving CLV will result in more revenue. CLV pinpoints the specific customers that bring the most profits to your business, allowing you to serve these current customers with services they like to encourage long-term business.

CLV can help you pinpoint issues so you can boost your retention

By making reviewing CLV a priority, you can identify any worrisome trends that pop up and take action to address them. For example, if your CLV is always low, you can work to enhance your customer support strategy or loyalty program to better meet customer needs.

Helps to target ideal customers

When you discover the lifetime value of a customer, you will know how much money they spend at your business over time. With this information, you can create a customer acquisition strategy to target specific customers who will want to spend money on your business.

Increased CLV can reduce customer acquisition costs

Acquiring brand new customers can be expensive.  Because of this, it is important that you identify and nurture the most valuable customers. In turn, this will increase profit margins, increase customer lifetime values, and reduce customer acquisition costs.

Reach Out to Us Today

At Digital Limelight Media, we offer retention marketing to help you keep loyal customers and customer relationship management services to help streamline your lead communications. To learn more about our services or to schedule a 15-minute demo, contact us today.

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