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Customer Lifetime Value

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Published: Dec 5, 2018

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What is customer lifetime value (clv) and how can you increase it.

15 min read Customer lifetime value (CLV) is one of the key stats to track as part of a customer experience program. Customer lifetime value is a measurement of how valuable a customer is to your company, not just on a purchase-by-purchase basis but across entire customer relationships. Learn how to calculate customer lifetime value and increase your customer ROI with our guide.

What is customer lifetime value (CLV)?

Customer lifetime value is the total worth to a business of a customer over the whole period of their relationship with the brand. Rather than looking at the value of individual transactions, this value takes into account all potential transactions to be made during a customer relationship timespan and calculates the specific revenue from that customer.

There are two ways of looking at customer lifetime value: historic customer lifetime value (how much each existing customer has already spent with your brand) and predictive customer lifetime value (how much customers could spend with your brand). Both measurements of customer lifetime value are useful for tracking business success.

Free eBook: The Ultimate Guide to Improving Customer Loyalty

Historic customer lifetime value

If you’ve bought a $40 Christmas tree from the same grower for the last 10 years, for example, your customer lifetime value has been $400 – pretty straightforward. This is an example of historic customer lifetime value – a measure that works by looking back at past events. It’s helpful to understand what an existing customer has brought to your brand and for building profiles of ideal customers, but it’s not as useful for predicting future revenue when considered alone.

Predictive customer lifetime value

You can also calculate predictive customer lifetime value . This is an algorithmic process that takes historical data and uses it to make a smart prediction of how long a customer relationship is likely to last and what its value will be. It can take into account customer acquisition costs, average purchase frequency rate, business overheads and more to give you a more realistic customer lifetime value prediction. It can be a more complex way to calculate customer lifetime value, but it can help you to see when you need to invest in your customer loyalty.

How is customer lifetime value different from other customer metrics?

Customer lifetime value is distinct from the Net Promoter Score (NPS) that measures customer loyalty , and CSAT that measures customer satisfaction because it is tangibly linked to revenue rather than a somewhat intangible promise of loyalty and satisfaction.

It’s a confirmed understanding of how much loyal customers bring to your business financially, or in the case of predictive customer lifetime value, how much they are likely to bring based on past data.

Knowing existing customers’ lifetime values helps businesses to develop targeted strategies to acquire new customers and retain existing ones while maintaining profit margins. Read on to understand why customer lifetime value is a key metric to track, and how to calculate and improve on it.

Why is customer lifetime value important to your business?

It helps you save money.

Customer lifetime value is an important metric to track, as it costs less to keep existing, loyal customers than it does to acquire new ones. Recent research has found that even in sectors with potentially easier customer acquisition, such as e-commerce, t here’s been a 222% increase in costs for new customers over the last eight years.

Focusing on increasing the current customer lifetime value of your existing customers is a great way to drive growth. Rather than relying on new customers (and spending lots to get them), you can figure out what keeps your customer base loyal and replicate your actions for increased value with existing customers.

It helps you spot and stop attrition

Customer lifetime value is a great metric to use to spot early signs of attrition and combat them. Let’s say you notice that customer lifetime value is dropping, and pinpoint that customers are neglecting to sign up for a continuation of an ongoing subscription of your product or service. You might decide to launch or improve a loyalty program to tempt customers back, or provide better customer support or marketing efforts around renewal times to help encourage customers to sign up again. This will help to increase customer lifetime value and business revenue again.

It helps you find your best customers and replicate them

Your best customers will have a higher customer lifetime value, and through careful analysis you’ll be able to understand the commonalities between these individuals. What drives them to buy into your brand again and again? Is it a common need, a particular income bracket, a specific geographical location? You can define a whole customer segment based on these higher value existing customers alone.

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Once you’ve analyzsed the drivers for high customer lifetime value and created a buyer persona specifically for this type of customer, you can seek out new customers using this information. Once you’ve got them on board, you have your predictive customer lifetime value to rely on for future revenue.

How much are your existing customers costing you?

Customer lifetime value goes hand in hand with another important metric – CAC (customer acquisition cost). That’s the money you invest in attracting a new customer, including advertising, marketing, special offers and so on. Customer lifetime value only really makes sense if you also take the customer acquisition cost into account.

For example, if the customer lifetime value of an average coffee shop customer is $1,000 and the customer acquisition cost is more than $1,000 (using advertising, marketing, offers, etc.) the coffee chain could be losing money unless it pares back its customer acquisition costs.

Another factor in the equation is Cost to Serve. This is part of the cost of doing business, and it involves everything you do to get the product or service into the customer’s hands and doing what they need it to do. For example, logistics, overheads in your physical location, contact centre costs and so on.

Breaking this down by customer can help you understand these costs on a granular level, and dig into details like whether your customers with a higher customer lifetime value cost the same as the low ones, and whether some customers are more expensive than others. If the cost of serving existing customers becomes too high, you may be making a loss despite their seemingly high customer lifetime value.

Cost to serve may vary across the customer lifetime, unlike customer acquisition which is a one-off expense. To use a paid TV subscription as an example, your cost to serve might be higher in the first year of a contract but gradually drop off the longer the customer stays with you. Thus, if your renewal rates drop, your average cost to serve is likely to rise and cause a drop in profitability.

Understanding these numbers over time and being able to track them side by side is the only way to get a true understanding not only of what’s driving customer spend and loyalty but also what it’s delivering back to the business’s bottom line.

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How do you calculate customer lifetime value (CLV)?

There are a couple of factors that go into how you calculate customer lifetime value – we’ve laid them out below.

A simple customer lifetime value formula

The simplest formula for measuring customer lifetime value is:

Customer revenue per year * Duration of the relationship in years – Total costs of acquiring and serving the customer = customer lifetime value

This formula is suitable for situations where the figures are likely to remain relatively flat year-on-year.

There are other useful formulas that can help you to calculate customer lifetime value. Read our helpful guide to calculating customer lifetime value to understand what these formulas are and how to apply them.

Other important factors for your customer lifetime value calculation

As you can imagine, in bigger companies with more complex products and business models, customer lifetime value gets more complicated to calculate.

Some companies don’t attempt to measure customer lifetime value, citing the challenges of segregated teams, inadequate systems, and untargeted marketing.

When data from all areas of an organisation is integrated, however, it becomes easier to calculate customer lifetime value more accurately.

Customer lifetime value can be measured in the following way:

Identify the touchpoints where the customer creates the value
Integrate records to create the customer journey
Measure revenue at each touchpoint
Add together over the lifetime of that customer

How to improve customer lifetime value (CLV)

Customer lifetime value is all about forming a lasting positive connection with your customers. So it naturally follows that the way to boost your customer lifetime value figures is to nurture those customer relationships. Here are a few ways of doing that.

Invest in customer experience

Customer experience is made up of every instance of connection between a customer and a brand , including store visits, contact centre queries, purchases, product use and even their exposure to advertising and social media. Improving the experience is a business-wide endeavour that’s often addressed using a customer experience management program . This is a process of monitoring, listening and making changes that add up to a lasting improvement in how customers feel and their tendency to be loyal over the long-term.

Ensure your onboarding process is seamless

Customer experience starts the moment a potential customer encounters your brand, but often companies can forget that customers need care after the purchase. Make sure your onboarding process is optimised for your customers’ needs, and it’s as simple and easy as possible for minimal customer effort . Personalisation and communicating the extra value you provide to your customers should be a priority. You should also remember that how you treat your customers during the onboarding process is how they expect to be treated ongoing, so make sure your customer experience reflects this.

Start a loyalty program

A loyalty program incentivises repeat business by offering discounts or benefits in return. A loyalty program might take the form of a loyalty card or app, or a points system that customers accrue when they make a purchase. Although it’s not a silver bullet for customer retention , a loyalty program can yield great results when it’s planned and executed well.

Recognise and reward your best customers

With your customer experience management program up and running, you’ll already have some ideas about which customers are likely to have the best customer lifetime value. You can nurture your relationships with these individuals or groups using targeted marketing and special offers that recognise their loyalty. This could include free expedited shipping, top-tier benefits in your loyalty program, or access to exclusive or pre-release products and services.

Provide omnichannel support

Your customers will have a variety of preferences for how they engage with you, so your support channels need to reflect this. Do your research to find out which channels your particular customer base prefers, rather than just offering what you think they’ll want to use. Get customer feedback on self-service options and frontline interactions to provide a great customer experience with omnichannel support.

Remember the power of social media

Social media is increasingly important not only for customer communication, but for customers to gather information on your brand and public image. If customers feel as though your social media responses to a query or issue aren’t fast enough, thorough enough, or empathetic, this will affect the opinion the customer has of your brand moving forward. Make sure you factor in social media – mentions, and responses into your customer experience strategy.

Close the loop with unhappy customers

Closed-loop feedback is a powerful way to reduce unwanted churn and turn dissatisfied customers into newly loyal ones. In this model, businesses proactively reach out to detractors o r complainants and intervene before issues can escalate and lead to a breakdown of the customer relationship. In many cases, this targeted effort and active listening on the part of the business actually makes the relationship stronger than it was originally. It’s a valuable extension of your customer experience management program.

Making customer experience a vital driver of customer lifetime value

Ultimately, you don’t need to get bogged down in complex calculations – you just need to be mindful of the value that a customer provides over their lifetime relationship with you. By understanding the customer experience and measuring feedback at all key touchpoints, you can start to improve on the key drivers of customer lifetime value.

At Qualtrics, we believe that customer experience is a vital reason why customers return to a brand again and again. By focusing on customer experience, you’re able to easily increase customer lifetime value – we’ve found that customers who rate an experience 5/5 stars are more than twice as likely to buy again, and 80% of satisfied consumers will spend more.

Make accurate predictions for future revenue based on a holistic view of your customers’ relationship with your brand. See customer acquisition costs and more data alongside the results of customer satisfaction surveys and more on one integrated dashboard.

Related resources

Customer Churn & Retention

Churn Reduction 15 min read

Customer acquisition 21 min read, customer retention strategies 13 min read, calculate clv 13 min read, customer retention 21 min read, customer loyalty programs 12 min read, customer loyalty 18 min read, request demo.

Ready to learn more about Qualtrics?

The Importance of Customer Life-time Value

What is customer lifetime value (cltv).

Customer lifetime value measures how much customers are worth for the duration of their relationship with your business.

Why does CLTV Matter?

There are several reasons that customer life-time value matters.

First, understanding lifetime value helps you determine how much your business can afford to spend to acquire new customers and to retain existing customers.

Second, customer life-time value tends to vary by customer segment. Understanding which segments are most and least profitable helps you identify which types of customers to nurture and, in some cases, which customers to “fire.”

Third, analyzing the different parts that make up customer lifetime value will help you identify which levers are most important in improving customer profitability. For example, if you find a significant drop-off between a customer making a first purchase and a second purchase, you might focus on increasing the number of customers who make a second purchase.

The bottom line is that understanding your customers’ lifetime value is a critical underpinning of growing and maintaining a healthy and profitable business.

How do I calculate customer life-time value (CLTV)?

Let’s start with the basic equation.

You will need to determine a period of time you are going to use as your customers’ lifetime. That means how long your customer will remain an active customer. For this exercise, let’s assume a lifetime of three years. An analysis of your business’ customer cohorts will get you a more precise answer, but for now, let’s use three years as an example. Here is what you will need to know:

If you want to understand your gross margin per customer, you’d adjust the formula this way.

Average lifetime gross margin per customer

Now we need to look at the cost of acquisition.

Why do I need to look at the cost of customer acquisition?

For most businesses, the cost of acquiring a customer is a significant expense. Rarely do businesses generate enough revenue and margin in the first purchase to recover the cost of acquiring the customer. Backing out the cost of acquisition gives your business a much more accurate view of your overall profitability.

I don’t have a fancy analytics team; how do I calculate the cost of customer acquisition?

The most straightforward way to estimate customer acquisition cost is to assign a role to each marketing channel. In other words, a marketing channel is labeled as either acquisition or retention. The costs associated with that marketing channel are then applied to either acquisition or retention. We have an example below for you to follow. The numbers we are using are annual, but you can use quarterly or monthly numbers if your business has a lot of seasonality or prefer a greater precision level.

In this case, the blended cost of acquisition is $70 per customer. The business is spending $300,000 a year on acquisition and $100,000 a year on retention marketing.

Let’s wrap up the customer lifetime value for this business.

Assume a scenario where customers make 9 purchases over a 3-year period, each one averaging $50. That means the customer generates $450 over the lifetime. With a 40% margin, that is equivalent to $180 in gross margin.

To calculate the life-time revenue and margin, you would do the following:

The average lifetime revenue after CAC is $380, and the margin is $110. It’s important to note that this business does not break-even on acquisition until the fourth purchase. This is what makes customer segmentation and customer nurture programs so important. That is not to say that every business will break-even only on the fourth purchase, but most businesses do NOT break-even on the first purchase, and it’s important to understand when they do so that you can maximize your business’ productivity.

An example of the cumulative revenue and margin for the first four purchases is below:

Customer lifetime value: what it is and why it is important for your business [Updated]

Written by Karolina Matuszewska

Published July 8, 2021 · Updated September 1, 2021

Customer lifetime value: what it is and why it is important for your business [Updated]

Marketers and managers devote time, effort, and significant resources to track their customers’ journeys from start to finish, improve content, and provide the best customer experience.

However, many marketers focus on fleeting results, such as a single sale or upsell. Businesses that want to ensure long-term success need to see the bigger picture. It means they include measuring customer lifetime value (CLV) in their strategy.

What is customer lifetime value (CLV)?

Customer lifetime value is a primary metric for understanding your customers. It’s a prediction of the value your relationship with a customer can bring to your business. This approach allows organizations to demonstrate the future value they can generate from their marketing initiatives.

As explained in this marketing guide : “ Rather than thinking about how you can acquire a lot of customers and how cheaply you can do so, CLV helps you think about how to optimize your acquisition spending for maximum value rather than minimum cost.”

Focusing on CLV helps you design an efficient strategy with concise budget planning. However, some customers bring your business more value than the others. That’s why it’s crucial to know which ones you should focus on first and invest in.

Since you can’t be sure how long this relation will last, you can estimate it and state CLV as a periodic value. Depending on your business, you can set it for different time frames, but commonly it’s fixed for a 12 or 24-month period.

Why you should calculate customer lifetime value (CLV)

One of the key reasons for measuring CLV is customer retention. Marketing Metrics reveals that the probability of selling to a new prospective customer is 5%–20%, while the probability of selling to an existing customer is 60%–70%.

It means that selling more to repeat customers will bring significantly more profits. That also highlights the impact of promoting customer loyalty. Regular customers tend to spend more on your products, helping you grow and promote your business. According to a Criteo survey , 81% of marketers claim that monitoring CLV boosts sales.

But your customers aren’t equal when it comes to revenue per customer, cost per acquisition, and other metrics. By measuring CLV you can better evaluate how much you should invest in retaining your customers. It also enables your organization to define marketing goals, plan spending to lower acquisition costs and keep retention high.

Moreover, you’re able to allocate more resources to encourage customers to spend more over their lifetime with your brand.

CLV gives you a closer look at your business’s health by taking a longer time frame into account. This gives a greater precision to determine whether your current acquisition and retention strategy is designed for scoring quick wins or supports steady and sustained growth.

Finally, customer lifetime value provides you with relevant information on your users and clients. It lets you answer some key questions, such as:

How much should I spend to acquire a customer?
How much should I invest to retain or win back my customers?
How much time should my sales and marketing team spend on customer acquisition?
Are my offers well-suited for my best customers?

What it takes to calculate customer lifetime value (CLV)

First, you need a good understanding of your customers’ journey. That’s what you get from analytics – data on customer behavior and experience across multiple touchpoints, such as your website, mobile app, and digital products.

Collecting consumer data over the whole journey often involves personal data, information that can identify individuals. This kind of data falls within the scope of different privacy regulations and requires proper handling.

Read more about the legal meaning of personal data in: What is PII, non-PII, and personal data?

If you want to gather and process such data in a compliant manner, you need privacy-friendly analytics . That is, methods for measuring and analyzing data that both respect individual privacy rights and deliver relevant insights.

One piece of software that applies such methods is our own product, Piwik PRO Analytics Suite. We designed it to maximize the collection of data. But personal data is only collected when proper consent is in place. Otherwise, only anonymous data is collected.

If you obtain consent from your site visitors and product users, you get more granular information that you can use for various purposes whether it’s analytics, conversion tracking or remarketing.

Even if consumers decline to give consent, you can turn on anonymous tracking . It means that Piwik PRO registers an anonymous visitor and session. You won’t be able to identify the user, but you still obtain valuable information about the session details.

Anonymous data will allow you to estimate CLV in some cases. The addition of personal data, however, will make your CLV calculations much more reliable.

For example, adding a customer data platform (CDP) to your current analytics stack will give you the personal data connections you need to precisely calculate CLV. It allows you to merge data from multiple online and offline sources, such as from a CRM or a transactional system.

Read more about customer data platforms in: Customer data platform: what is it and how does it work?

How to calculate customer lifetime value CLV

If you want to calculate CLV you have a few formulas to choose from. Your choice depends on the resources you have. But just pick one and stick to it. We’ll present you with the simplest and most traditional one. To measure CLV, you need to include the following:

Customer lifespan
Retention rate
Customer churn rate
Average profit margins (per customer)

Also, you can differentiate between historical and predictive CLV. We’ll talk about this in detail in the next sections.

Historical customer lifetime value (CLV)

Historical CLV is the sum of all the gross profit from a customer’s past purchases. To calculate it, you need to add up all the gross profit values up to the last transaction (N) a customer made. Measure CLV based on the net profit to get the true profit a given customer generates. This involves costs of service, return, marketing, acquisition, and so on.

The downside is that you might have to do some complicated math at the individual level to have the most up-to-date data. Still, gross margin CLV gives you a thorough understanding of your customers’ profitability to date.

Where: AGM = Average Gross Margin

In principle, this method is handy if customers share the same preferences and interact in the same way with your brand over roughly the same time.

Keep in mind that calculating historical CLV means putting all customers, old and new, into one basket. That might be tricky, because they can vary when it comes to behavior and preferences. Differences between clients can affect CLV.

Predictive customer lifetime value (CLV)

The aim of predictive CLV is to model the transactional behaviors of your customers to forecast what actions they will take in the future. It’s a great indicator of CLV, better than historical CLV.

The predictive model uses algorithms that try to generate a precise CLV while predicting a customer’s total value. It works based on a history of past transactions and the customer’s actions.

Again, you can choose from different CLV formulas. We’ll focus on a simple one for clarity’s sake.

Here’s the formula:

Where: T = Average monthly transactions AOV = Average order value ALT = Average customer lifespan (in months) AGM = Average gross margin

An analytics platform with a CDP can quickly integrate with your CRM to give you easy calculations for AOV and ALT.

However, keep in mind that this approach is a prediction, so it won’t always be 100% accurate. To improve accuracy, you should adjust CLV calculations to the specific industry you operate in. Precision in your CLV gives you a tool for developing sound marketing strategies.

Traditional customer lifetime value (CLV)

Sometimes a more traditional but in-depth CLV formula might work better. That’s the case when your yearly sales aren’t flat. Then, it’s important to consider the discount rate, average gross margin per customer lifespan and retention rate.

Here’s what your final formula will look like:

Where: GML = gross margin per customer lifespan R = monthly retention rate D = monthly discount rate

This formula looks at possible changes in customer revenue throughout a period of time. Then, each year is corrected by a discount rate to account for inflation.

How to apply customer lifetime value (CLV)

Once you calculate your CLV, you can use this information to chisel your strategies. Here are a few cases where you can apply it.

Segment your customers effectively : With the application of CLV models, you can improve both profiling and segmentation. That allows you to customize offers and target customers based on their potential value. It also enhances forecasting and lead conversion rates. Additionally, you can increase the effectiveness of your segments with data gathered exported from different sources into technologies like customer data platforms (CDP).
Optimizing acquisition : Experts from ALTA stress that predictive CLV lets you increase acquisition as it helps professionals “ make sure to acquire subscribers who will represent the biggest lifetime value in the future .”
Lift retention : CLV is your compass for navigating steps to keep your customers loyal to your brand. It aids you in setting priorities, such as which customers to win back, and in devising a unique strategy to do just that.
Improve forecasting : Calculating CLV provides you with a tool to predict the future need for your products or service. With this information at hand, you can manage your investment in terms of workforce, inventory, or other resources. Detailed forecasting is vital for reducing productivity losses and allocating resources more efficiently.
Recognize best customers : Data on your customers, like frequent purchases and transactions, allow you to spot those who spend the most. This information tells you which products to promote more heavily. You can invite customers to special events and offer deals tailored for high-value clients. Finally, you can take better care of your biggest customers by providing them with an individual assistant or adviser.

6 steps to improve customer lifetime value (CLV)

Let’s think about what you need to improve your CLV. We’ll walk you through some steps you can follow to improve your relationship with customers, providing them with a better experience to retain them.

1. Take advantage of first-party data

Because you power your CLV with data, it’s crucial to use high-quality data. In that case, your focus should be on first-party data . Since this kind of data comes directly from your customers, it’s more accurate and gives you details about consumers’ interactions on your website or app, like form submissions, product views, and in-site search queries. You’ll need such information to improve content personalization and recommendations, activate audiences, and refine up- and cross-sell initiatives. A carefully personalized user experience significantly boosts revenue and CLV.

2. Optimize onboarding

It’s crucial to get the first experience customers have with using your products and services right. A smooth onboarding process encourages customers to use your product and come back to it often. That translates into higher lifetime value in the long run. Making the process quick and providing e.g. video tutorials might come in handy.

3. Prioritize customer support

It’s essential to take care of your customers both before and after they make a purchase. The building blocks of this care are enabling them to feel comfortable using your product, staying proactive, and replying to them on time. Your support team can also assist customers with personalized training and practical self-help guides. According to Microsoft research , for 90% of Americans, customer service is a factor in deciding whether to do business with a company.

4. Increase average order value

Another way to improve CLV is to increase average order value. You can achieve this taking advantage of up- and cross-sell methods. Next time when your customer is making a purchase you could offer them a complementary product to those they’re just about to buy.

5. Ensure good communication

Good communication with your customers is about knowing their needs, active listening and building relationships. It also involves collecting feedback from your customers, giving them explicit answers to their technical questions and adapting communication channels to match their references.

6. Stay relevant

The world is changing rapidly and so are customers’ expectations and desires. If you want customers to stick with your business, make your offer relevant to your audience. Ensure good communication with customers, provide them with products that address their needs. Finally, it’s important to have a competitive advantage that you can present to them.

Creating value for lifetime

CLV is one of the most critical metrics for businesses that adopt a data-driven approach. However, it should be one part of your strategy, not the sole focus.

Improving your CLV takes more than better customer service and staying relevant. It requires changing your perspective on consumers and seeing them “more as value-creating partners than as value-extraction targets,” as Michael Schrage notes. This researcher explains that customers become more valuable when they give you good ideas, cooperate with you, share their data, try out your new products, and promote your company.

But consumers give you even more information as they request new features, share experiences of using competitors’ products and get in touch with your customer support.

All that underlines the importance of data in measuring and improving CLV. With the use of the right analytics software, you’ll be able to collect that data and transform it into actionable insights.

If you’re looking for high-performance analytics software, read our detailed comparisons between Piwik PRO and Google Analytics ( free and 360 ), Adobe and Matomo .

Karolina Matuszewska

Senior Content Marketer

Writer and content marketer. Transforms technical jargon into engaging and informative articles.

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What is customer lifetime value (CLV) and why do you need to measure it?

In this article I’ll ride into the dusty, obfuscated world of marketing phrases, acronyms and buzzwords and try to make sense of it all in the clearest language possible.

Which means I should probably stop using words like ‘obfuscated’.

Following on from yesterday’s guide to single customer view , let’s take a look at customer lifetime value (CLV).

Customer lifetime value

Quite simply, CLV is the total worth of a customer to a business over the entirety of their relationship.

So for instance, the CLV of my relationship with Amazon since I began using it in the late nineties is… well, I wouldn’t like to say. The same goes for Rough Trade, or Threadless, or any number of cake shops on my way to work.

Figures that are impossible or difficult to work out, not just because of my own personal shame, but also because the data doesn’t necessarily exist. Also who can possibly say when the final total will be tallied up?

When I finally reject all my material possessions and spend the rest of my life wandering around the Alaskan wilderness? Or when… uh… that other thing happens… that I don’t like to think about?

According to our own report ‘Building Loyalty and Driving Revenue in the Digital Age’ , executives universally agree that growing CLV is essential to the health of their organisation and a key measurement of success.

Apparently CLV is also a distinct metric from the similar sounding ‘customer loyalty’ because it can be tangibly linked to revenue, rather than just intangibly linked to a warm cosy feeling of promised fidelity.

Which brings me to my next question…

How do you measure CLV?

The old adage that it costs less to retain existing customers than it does to acquire new ones is certainly still true for most marketers.

According to Marketing Metrics, the probability of selling to a new prospective customer is 5%-20% whereas the probability of selling to an existing customer is 60% –70% .

Yet marketers are still more focused on acquisition than retention. According to our own Cross Channel Marketing Report , only 15% of companies surveyed are ‘more focused on retention’.

Also, just 42% of companies are able to even measure customer lifetime value . There are many reasons given by our respondents as to why measurement is a challenge: the heavily segregated nature of teams within their organisation, poor systems, lack of coherent marketing and lack of integration.

Measuring CLV can be boiled down to a simple formula: customer revenue minus the cost to acquire and serve the customer. Again this is a simplified view, and there are many other variables that can come into play based on your sector.

The key thing to remember is that customer segments should be identified by value and targeted in the most effective, cost-efficient way. Measuring the customer’s actual CLV can then be used to forecast predicted CLV.

The following segment I’m going to take directly from our downloadable Customer Lifetime Value Report which has been invaluable in writing this article.

Here we have summarised other approaches to measuring customer lifetime value.

Measuring actual CLV:

Identify moments where value is created.
Bring customer records together to create a view of their journey.
Measure profit at each point.
Add together over the lifetime.

Measuring predicted CLV:

What is that value a function of? (Does it vary from customer to segment? If so, identify why.)
Identify why the customer moved from one moment to the next.

A simple model like this is useful in the case of multiple, frequent purchases of a similar type of product, where data on past purchases data is easily available.

These customer journeys, patterns of behaviour, frequency of visits and engagement figures can then be used to predict future customer lifetime value.

15 ways for companies to increase customer lifetime value

Benefits of CLV

If you can’t measure CLV, you can’t see the benefits of it, and therefore you won’t build it into your business strategy.

Having a clear idea of CLV will help provide meaningful insights into how you can plan future marketing campaigns and improve future customer interactions.

It can help you decide how much your company should invest in retaining existing customers and how you should divide budget between retention and acquisition.

Ultimately CLV can give you a strong indication of your company’s health in the long-term. Is your current acquisition and retention strategy built for making quick wins in the short term or is it helping achieve sustainable growth?

The Benefits of Customer Lifetime Value: Why It Matters

By Totango Team
June 27th, 2019

What do America’s longest running companies all have in common? They focus on the big picture: customer lifetime value.

If you want your business to last, you need to prioritize customer lifetime value, too. To succeed in today’s customer-centered economy, you can’t simply focus on attracting new customers. After all, there are plenty of competitors to choose from, and customer expectations are higher than ever. Instead, view each customer in terms of their lifetime value, meaning the total amount they may spend long-term if you retain them.

For companies willing to evolve, the benefits of customer lifetime value are many. By cultivating customers who have a high lifetime value, you can ensure stable revenue for years to come. But first, you have to know how to retain them.

The Benefits of Customer Lifetime Value

When you emphasize customer lifetime value, you can cultivate a base of loyal customers to ensure steady returns on a regular basis. This strategy will secure your market presence for decades to come.

Cultivating customer lifetime value:

Is Cost-Effective: Convincing a new customer to make a purchase is an expensive process. It costs advertising dollars and requires sales people and sometimes even the collaboration of several different teams. By simply keeping the customers you already have, you avoid paying these expenses a second time.
Fosters Brand Loyalty: Customers with high customer lifetime value have proven their loyalty, and loyal customers are likely to spread good word-of-mouth about your brand and evangelize online. This provides unsolicited testimonials, which potential customers see as highly credible, and improves your brand reputation.
Saves Time: Knowing each customer’s customer lifetime value helps you identify where your customer success team’s efforts are most likely to pay off and who would benefit from an upsell. High customer lifetime value clients already have a track record of bringing in strong revenue, so go straight to this group when looking for growth areas.
Predicts Churn: Customers with high lifetime value are less likely to churn. They have a track record of success with your product and aren’t likely to leave unless something changes dramatically.

Of course, the higher your customers’ lifetime value is, the more your company will profit. So, the more work you put into raising customer lifetime value, the more revenue you’re likely to bring in.

How to Reap the Benefits of Customer Lifetime Value

If your business is looking to focus on customer lifetime value, you’re in luck. There are many best practices that will help you foster positive customer lifetime value , including:

Increase Your Number of Repeat Customers

Move away from just thinking about single-purchase customers so you can encourage customers to continue using your product. The goal is to cultivate more repeat customers until they make up the majority of your sales. You can start simple, with the goal of getting one-time customers to come back for a second transaction. Some ways of doing this include contacting the customer to remind them of the value your product offered them. Depending on the product or industry, you could make follow-up phone calls. You can also ask for feedback. Whatever you do, remember that winning a customer back for a second purchase means starting a relationship with them. As time goes on, you’ll form a lasting bond with the customer.

Next, focus on getting repeat customers to increase their order frequency rather than trying to raise the amount spent per order. This gets customers in the habit of buying and using your product. From this point on, focus on raising customer loyalty. You can do this by implementing customer loyalty programs or connecting with customers through feedback surveys, special offers, or other rewards. As the number of loyal customers increases, you can expect more revenue that doesn’t come at the expense of your advertising budget.

Optimize Onboarding

Onboarding begins as soon as the transaction is complete and lasts until your customer learns how to use all your product’s features. If customers don’t fully adopt your product and gain value from it during onboarding, they run a high risk of churning —higher than any other stage.

Be sure to communicate the value your product offers from the very start. Provide how-to videos and tutorials. Monitor your product use and if you see a reduction in the frequency of use, alert your customer success team so they can offer help.

Provide Value Constantly

Continue to provide value, even when the customer moves into the adoption and renewal stages. Engage customers through tactics such as by releasing new features or periodically sending automated communications. These messages can provide information such as how much money your product has saved the client, information about their resolved support tickets, or how the customer is progressing toward certain goals. Never stop proving your product’s worth to your customer and you’ll eliminate one of the greatest causes of churn .

Retain Customers for Life Using Customer Success Software

Customers have plenty of choices in today’s customer-centered economy, and if your company prioritizes the pursuit of short-term revenue, customers will be more likely to churn. Instead, ensure stable revenue from loyal customers by cultivating the benefits of customer lifetime value.

But cultivating customer lifetime value doesn’t happen overnight; rather, it requires a dedication to enhancing the customer lifecycle long-term. If your business is having trouble engaging customers in meaningful ways, try using customer success software . It can give you the functionality you need to measure, respond to, and improve every stage of the customer journey. America’s oldest companies have lasted this long because they’ve built loyal customer bases by adapting to meet changing customer demand over the years. Give your success team the functionality it needs to provide deeper customer engagements and your business can last a lifetime, too.

When you need functionality that can help you build customer lifetime value, try Totango . Our comprehensive customer success software helps you retain customers and increase loyalty at every point along the customer journey. Request a demo or explore Spark to learn more.

Posted on: June 27th, 2019

How to Calculate Customer Lifetime Value says:

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Customer Retention Optimization Strategies to Keep Customers Long-Term says:

[…] are your enterprise’s life’s blood. When you get a new customer, work to retain them and grow customer lifetime value. While the sales team will always be looking for new customers, retaining a current customer is far […]

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Important lessons for embracing customer lifetime value

When businesses and marketers think about customers, the focus is often on immediate transactions: what people are buying now and how. Marketing strategies, then, involve valuing these customers only over the short term.

However, when it comes to driving profitable growth in the long term, customer lifetime value (CLV) is a metric that can no longer be ignored. CLV, which measures the total value a business receives from a single customer over their entire relationship, is an ideal way to acquire, develop, and retain the most valuable customers for business growth.

Companies can benefit from having a clearer understanding of how to invest in long-term customer relationships instead of optimizing volumes of short-term transactions.

However, the simplicity of CLV — a single metric that quantifies the future value of each customer — can mask the challenges of implementing it.

Here are five tips for companies as they start their journey to adopting CLV in their own businesses.

1. Look as far ahead as possible

Despite the well-established history of CLV models, shifting from short-term to long-term thinking, especially with a predictive metric, involves the perception of risk. What if the model is wrong? What if my customers behave differently from any other business? The discount factor — finding future cash flow values — in the CLV model includes some level of risk and uncertainty. To help moderate these risks, companies will often truncate their calculation of CLV to fit their existing short-term mindset of six- or 12-month projections. Avoid this temptation. Narrowing your understanding of the future could deprive your business of valuable opportunities and, just as importantly, valuable customers who may purchase infrequently but spend high amounts when they do so. If your business is stuck, consider running CLV models with both short- and long-term time horizons, focusing on the actual differences between the two. How much value would be given up? What customers or behaviors would be missed in the shorter period? Can your marketing efforts be tailored to acquire the long-haulers while still meeting internal pressures for quicker returns?

2. Don’t drill down too deeply for data

The combination of machine learning and unimaginable amounts of data have led to some companies constructing incredibly detailed behavioral profiles of their best customers: “They exist in this specific market, and they engage with us on this type of device from 3-4 p.m. on Wednesdays.” While impressive, that level of precision may be counterproductive because there are only so many similar customers who may exhibit the same behavior. To borrow from a fishing metaphor, you’ll be more productive with a net than a spear. Keep the size of your prospective audiences in mind as you’re trying to classify user behavior. Start simply by looking broadly for customers who are more valuable than those you are acquiring today, then start to drill down — but not too far.

3. Use the right approach at the right time

While several types of statistical models, such as negative binomial distribution models, have emerged as favorites for their precision and long-term stability, they require customer observations over multiple periods of time before a prediction can be made. This can make bid optimization for digital ads difficult for platforms that often require a success metric every few days.

Successful advertisers have embraced machine learning as an interim measure for more immediate — although less granular — predictions while reverting to traditional techniques as soon as the customer relationship allows. Be careful to avoid a false sense of confidence, though. It’s necessary to alternate between machine learning and traditional stochastic models, which are random variable models.

Benefits and challenges of different CLV models

4. always look for new types of customers.

The primary source of data for CLV models is your company’s data, but it will be biased because it’s based on the types of customers you’ve tried to acquire in the past. If your marketing actions were oriented toward immediate purchasers, those likely to engage in longer-term relationships may not represent a substantial portion of your dataset. As such, a portion of your marketing budget should always be put aside for exploration — finding and engaging with new types of customers who may be a more substantial source of long-term growth than your current. Put another way, you may not have found your best customers yet. Keep searching.

Put aside a portion of your marketing budget to find and engage with new types of customers for long-term growth.

5. Find ways to appeal to other stakeholders

Adopting CLV can be disruptive: shifting budgets, a delayed understanding of performance, and the gut reaction of judging previous short-term investments in a more critical light. Try to avoid making any large-scale changes at first. Focus on education instead. Help others understand the metric and how it could apply to their business. Be transparent about what will benefit from experimentation, and be open to how they see it impacting their own processes. It may be a slower, more deliberative process, but it improves the likelihood of the approach taking hold.

In the end, perhaps the most important lesson is simply to find ways to integrate CLV into your business rather than shaping your business to accommodate CLV. Be mindful of the guidelines and best practices , but avoid following any metric to such a dogmatic extent that it undermines all the optimizations and processes your business has developed to this point. You were successful because of them, so don’t forget them. Evolve them together instead.

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IKEA Company: Customer Lifetime Value Case Study

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IKEA is one of the most profitable companies which specialize in designing and selling furniture and accessories for houses and households in the world. IKEA was founded in 1943, and today the company operates all over the world while having the stores in 42 countries and opening a number of new stores in different countries annually. In the United Arab Emirates (UAE), there are two IKEA stores which are opened and operated according to the franchise business principles ( IKEA , 2014). To guarantee that IKEA stores in the UAE can develop according to the idea of the long-term growth, it is necessary to refer to the estimation of the Customer Lifetime Value (CLV) in order to examine the issue of profitability ( Customer Lifetime Value Calculator , 2007).

Following the CLV calculated for IKEA stores in the UAE, it is important to note that the average contribution before mailing costs per customer per year is expected to be $200; the one-time acquisition cost per customer is $350; the average contribution per purchase is $200; and the profit per customer in year is $600 ( Customer Lifetime Value Calculator , 2007).

The two benefits which IKEA would gain while embracing the concept of the CLV are the following ones: (1) the reduction of expenses associated with the promotion of the new products depending on the target audience’s interests because of improving the target marketing approaches with references to the CLV; and (2) the opportunity to focus on the appropriate service level to respond to the customers’ needs while concentrating on different groups of customers as a result of analyzing the CLV ( Customer Lifetime Value Calculator , 2007; IKEA , 2014).

Customer Lifetime Value Calculator . (2007). Web.

IKEA . (2014). Web.

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Customer Lifetime Value

Essay by people • August 26, 2011 • Essay • 266 Words (2 Pages) • 1,543 Views

Essay Preview: Customer Lifetime Value

In marketing, customer lifetime value (CLV), lifetime customer value (LCV), or lifetime value (LTV) is the net present value of the cash flows attributed to the relationship with a customer. The use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales. One of the first accounts of it is in the 1988 book Database Marketing, and includes detailed worked examples.[1][2]

Customer lifetime value has intuitive appeal as a marketing concept, because in theory it represents exactly how much each customer is worth in monetary terms, and therefore exactly how much a marketing department should be willing to spend to acquire each customer. In reality, it is difficult to make accurate calculations of customer lifetime value. The specific calculation depends on the nature of the customer relationship. Customer relationships are often divided into two categories. In contractual or retention situations, customers who do not renew are considered "lost for good". Magazine subscriptions and car insurance are examples of customer retention situations. The other category is referred to as customer migration situations. In customer migration situations, a customer who does not buy (in a given period or from a given catalog) is still considered a customer of the firm because she may very well buy at some point in the future. In customer retention situations, the firm knows when the relationship is over. One of the challenges for firms in customer migration situations is that the firm may not know when the relationship is over (as far as the customer is concerned).[3]

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Service Management: Customer Lifetime Value

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Introduction

Customer value policy.

Customer lifetime value is a powerful marketing management instrument, which provides essential benefits if applied properly.

Customer Lifetime Value is generally aimed to exploit profit by studying customer behavior and business processes to clarify and aim customers with the greatest possible net value over time. (Johnston, Clark, 2008)

Effective business requires that any company appoints higher priority to the customer value than to the issues of competency. To provide superior value, marketing strategy should directly impact three essential business processes:

Product Development Management
Supply Chain Management
Customer Relationship Management (Lowenstein, 1997)

The aim of the product development management process is to make solutions that consumers need. Supply chain management processes entail the achievement of data contributions and the effectiveness of incorporating these contributions into customer choices. (Johnston, Clark, 2008)

Customer Relationship Management has its derivation in the general standard of marketing. Actually, it is aimed to satisfy customers’ requirements with the best probable alternative in the market. Customer relationship management, as a part of customer lifetime value, goes beyond the transactional exchange and facilitates the marketer to value the customer’s feelings and consuming behavior and tendencies so that the consumer may be offered the products and services before he or she starts demanding them. (Autry, Hill et.al. 2007)

It is necessary to mention, that a successful Customer value policy is probable only by the junction of four important elements. These are people, process, technology and data. Customer data management provides the leads about the likelihood of customer requirements and the technology assists in tracking the features and classification of consumers depending on the previous consumer behavior cases. (Petrick, 2002) The process reorients the customary business replicas to suit the integrative approach of Customer Relationship Management by making Accent on customer lifetime value than a product’s lifetime value. The notion of customer lifetime value helps the market experts to study the cost of acquiring serving and retaining a particular set of customers in the market. (Johnston, Clark, 2008)

Transactional customer relations are regarded to be the lower level of Customer Lifetime Value strategy, and the transition to relational customer orientation is essential, and generally regarded as the next step in expanding information-intensive tactics to assist in producing the types of connections organizational consumer search, to better meet value-grounded anticipations of the business-to-business consumer, to improve long-term faithfulness, and eventually, to create increased income streams and customer productivity. Generally speaking, companies tend to concentrate on either consumer behavior or consumer attitude information, but frequently fail in joining both. Consequently, companies should clearly realize what their consumers do or how they feel, but most still do not how transactional and relational information can be applied to clarify both or the “total” customer relationship. (Schmitt, 2003)

The fact is that the key drivers for a company to state or optimize its Service Management practices for further Customer Lifetime Values are diverse:

High service prices can be decreased by joining the service and products providing chain.
Inventory extents of service parts can be decreased, therefore decreasing total inventory expenditures.
Increase customer satisfaction.
Define the time perspective over which lifetime value will be measured (e.g., 5 years)
Define the interest rate to be used when calculating current values
Define the costs attributable to a consumer
Sum the income, subtract prices, and take the current value over the particular time period

(Ragins, 2003)

It is necessary to state that Lifetime Value is generally applied to judge the suitability of the fees of attainment of a consumer. For instance, if a new consumer costs $50 to acquire, and the lifetime value is $60, then the consumer is regarded to be beneficial, and attainment of other similar consumers is necessary. (Johnston, Clark, 2008)

If a corporation clearly understood each consumer’s lifetime assessment, it could maximize its own inherent assessment by increasing the amount, scope and extent of value-creating consumer relationships and minimizing the value-devastating ones. In order to attain that, managers would have to determine how much revenue each customer would generate in the future and subtract the expected costs of acquiring, serving and keeping that customer. (Johnston, Clark, 2008)

It is argued, that in reality, very few corporations can calculate customer lifetime value, making it almost impossible to supervise customer lifetime value. The barricades have to do with the ways corporations are arranged, make choices and preceding information. Actually, there are other ways to realize the inherent value of customers that avoid these obstacles. It is also stated, that the inherent value can be a stepping stone to calculating and managing customer lifetime value in the prospect. (Johnston, Clark, 2008)

In the conclusion, it is necessary to emphasize, that companies must realize that customer value is more than just a tool for communicating with customers. Marketing-oriented Customer Related Management can offer useful information to the Product Development Management, thereby delivering more assessment to the company and to the customer. The Customer Value itself is the incorporation of essential marketing elements, which should be properly balanced.

Autry, C. W., Hill, D. J., & O’Brien, M. (2007). Attitude toward the Customer: A Study of Product Returns Episodes. Journal of Managerial Issues, 19 (3), 315.

Johnston, R., Clark, G (2008) “Service Operations Management” Financial Times/ Prentice Hall.

Lowenstein, M. W. (1997). The Customer Loyalty Pyramid . Westport, CT: Quorum Books.

Petrick, J. F. (2002). Development of a Multi-Dimensional Scale for Measuring the Perceived Value of a Service. Journal of Leisure Research, 34 (2), 119+.

Ragins, E. J., & Greco, A. J. (2003). Customer Relationship Management and E-Business: More Than a Software Solution. Review of Business, 24 (1), 25+.

Schmitt, B. H. (2003). Customer Experience Management: A Revolutionary Approach to Connecting with Your Customers . Hoboken, NJ: John Wiley & Sons.

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Application of Customer Lifetime Value Models in Banking

How banks can use the customer lifetime value model to identify the profit contributions of individual customers.

Application of Customer Lifetime Value Models in Banking

While models are abstractions of reality, they’re nonetheless useful tools to measure the financial impact of a bank’s strategy to influence customer behavior. The customer lifetime value model provides an important framework to identify the profit contributions of individual customers in current and future periods.

In “The Customer Centricity Playbook: Implement a Winning Strategy Driven by Customer Lifetime Value,” coauthors Pete Fader and Sarah Toms relate how the development of a customer lifetime value model should begin with basic questions such as “Can we project how long the customer is going to stay?” and “How much is the customer going to spend over the time horizon?”

In banking, customer attrition—or inversely, relationship retention—is driven by the breadth of product holdings and the depth of product usage as dimensioned by payment intensity and channel usage. Fortunately, Teradata ClearScape Analytics™ enables the development of a customer attrition model leveraging econometric methods, such as logistic regression, or tree-based methods like gradient-boosted decision trees.

Customer profitability is the revenue generated by the customer’s current product holdings less the direct cost of product usage. In banking, revenue is largely driven by the net interest margin charged to loans or credited to deposits plus any direct fees collected.

Direct cost is primarily driven by channel usage, which can be allocated either by activity, as in the duration of channel interaction times the marginal cost per second, or by access, as in the allocation of branch expenses to customers who are the primary patrons of the branch.

Retail banking is a 90/10 business, where 10% of customers account for 90% of the profits. When most customers generate close to zero profit, subtle differences in behavior, notably the breadth and depth of digital channel usage, materially impact customer profitability.

Customer lifetime value is a discounted cashflow analysis of customer profitability cast over the customers’ expected future life discounted at the bank’s target return on equity. Robust measures of customer lifetime value carefully assess the likelihood of product expansion in future periods as well as potential increases in the usage of current products. Calculation of customer lifetime value estimates can be validated by analyzing small bank acquisitions, divestitures, and branch acquisitions.

Banks spend most of their advertising and marketing dollars on acquiring new customers—and little on customer retention. Traditionally, they’ve focused on “product push” marketing, i.e., delivering targeted offers to a prequalified audience. One example of this is the airline miles bonus credit card offer. A careful consideration of the impact of attrition on customer lifetime value motivates banks to promote “services pull” marketing, or driving customers to services that disincentivize defection, such as the direct deposit of paychecks and online bill payments.

A less obvious application of the customer lifetime value model is to identify the economic value created by a bank strategy, such as a digital migration strategy, to change its customers’ behavior. Banks aggressively promote the migration of activity from physical channels (such as branches) to remote channels (such as digital banking), which can have an immediate positive impact on operating expenses.

However, some customers may react negatively to the promotion of remote banking, reducing deposit balances, dropping accounts, or even leaving the bank altogether. How can a bank weigh the opportunity for lower operating expenses today against the risk of reduced revenue tomorrow? Ultimately, it needs to measure how individual customers respond to the bank’s digital migration strategy. The bank can identify the customers impacted by the strategy and use its customer lifetime value model as a metric to enumerate the strategy’s financial impact on current and future periods. As the profitability of the customer base is highly skewed, it’s critical to assess the customer lifetime value of the customer impacted by the bank’s strategy.

To learn how banks are moving from the limited dimensions of the traditional customer profile to a holistic view, check out the white paper, “ Customer Banking Relationship in 5 Dimensions. ”

Financial services

About Gary Class

Gary is an accomplished industry strategist with extensive experience in financial services, where he has made significant contributions to advanced analytics and AI. Gary spent over three decades at Wells Fargo Bank as the Director of Advanced Analytics at the forefront of innovation during the transformational era of “anytime, anywhere” banking. His visionary leadership has shaped the landscape of financial services through innovation, data-driven insights, and strategic thinking.

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A higher quality score means you'll likely have a better ad position. As a result, your cost per click (CPC) will be lower. If you constantly work on improving your quality score, you can increase your campaigns' efficiency and performance.

Conversion Rate (CVR)

CVR measures how many website visitors end up taking the desired action. That could be buying something, signing up or submitting an inquiry. It’s the action that they take after clicking on your ad. This metric is crucial because it directly links the initial click to the desired outcome. It provides a clear measurement of your campaign's effectiveness.

Cost Per Acquisition (CPA)

CPA measures what each conversion costs. This metric offers a clear picture of the financial investment required to secure each successful conversion.

Calculating your CPA is really easy. You simply divide your total advertising spend by the number of conversions generated within a specific time frame.

Return On Ad Spend (ROAS)

Your ROAS is one of the most crucial measurements. It tells you how much revenue you generated for each dollar you put toward advertising. It’s the ultimate indicator of campaign profitability as it provides a clear overview of the financial return on your ad investments.

A higher ROAS means that you earned more revenue than you spent on ads. This is essential for justifying and scaling your advertising efforts.

Impression Share

Your impression share is the percentage of impressions your ads received compared to the total possible impressions that they could get. This metric reveals the extent of your ad visibility within your target market. Low impression shares may indicate the need for higher bids, better quality scores or expanded budgets to capture more market share.

Bounce Rate

Your bounce rate is the percentage of visitors who visit and then leave your landing page right away without taking the desired action. A high bounce rate requires a thorough analysis because it indicates that your landing page may not align with your target group. You may need to identify and address issues related to page load times, content relevance and the overall user experience.

Cost Per Click (CPC)

CPC is how much you pay for each click on an ad. It’s a critical metric to consider for managing costs and making the most of your budget. You should evaluate your CPC alongside other key performance indicators such as CTR and CVR.

Lifetime Value (LTV)

LTV is the revenue that a customer will generate from the beginning of their relationship with a business until the end. It includes purchases, subscriptions and any other revenue that can be attributed to a single customer over time.

LTV is often difficult to measure, but you can calculate it by determining the average value of customers' purchases, the average frequency of their purchases and the average customer life span. First, multiply the average purchase value by the average purchase frequency to get your customer value. Then, multiply customer value by the average customer life span to get LTV.

Customer Acquisition Cost (CAC)

Your CAC is the total cost to get a new customer. It includes all marketing and sales expenses such as ads and sales team salaries. To calculate your CAC, you add up all your marketing and sales expenses over a period and divide by the number of new customers you got during that period.

While your CPA measures the cost per individual conversion, CAC gives a broader view of the total cost to get a new customer into your business. You should pay attention to both because they provide different insights: Your CPA helps you optimize specific campaigns for cost, and your CAC gives you the total investment to grow your customer base.

The Importance Of Balancing LTV And CAC

To ensure long-term profitability, you have to find a balance between LTV and CAC. Ideally, your LTV should significantly exceed your CAC. This means that you're generating substantial value relative to your acquisition costs.

Make sure you continually monitor these metrics and adjust your strategies accordingly. If your CAC is too high, look for ways to reduce acquisition costs.

Google Ads is a powerful tool, but just creating and running ads isn’t enough. You need to constantly track key performance indicators such as CTR, quality score, CVR, CPA, ROAS, impression share, bounce rate, CPC, LTV and CAC. Review these regularly to make informed decisions and refine your strategy. Use Google Analytics and your Google Ads dashboard to make this process easier.

Identify key metrics like low CTR or quality scores to improve and adjust accordingly. That way, your campaigns stay effective and aligned with your business goals.

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What is customer lifetime value (CLV)?

Historic customer lifetime value

Predictive customer lifetime value

How is customer lifetime value different from other customer metrics?

Why is customer lifetime value important to your business?

It helps you spot and stop attrition

It helps you find your best customers and replicate them

How much are your existing customers costing you?

How do you calculate customer lifetime value (CLV)?

A simple customer lifetime value formula

Other important factors for your customer lifetime value calculation

How to improve customer lifetime value (CLV)

Invest in customer experience

Ensure your onboarding process is seamless

Start a loyalty program

Recognise and reward your best customers

Provide omnichannel support

Remember the power of social media

Close the loop with unhappy customers

Making customer experience a vital driver of customer lifetime value

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The Importance of Customer Life-time Value

Why does CLTV Matter?

How do I calculate customer life-time value (CLTV)?

Why do I need to look at the cost of customer acquisition?

I don’t have a fancy analytics team; how do I calculate the cost of customer acquisition?

Let’s wrap up the customer lifetime value for this business.

Customer lifetime value: what it is and why it is important for your business [Updated]

What is customer lifetime value (CLV)?

Why you should calculate customer lifetime value (CLV)

What it takes to calculate customer lifetime value (CLV)

How to calculate customer lifetime value CLV

Historical customer lifetime value (CLV)

Predictive customer lifetime value (CLV)

Traditional customer lifetime value (CLV)

How to apply customer lifetime value (CLV)

6 steps to improve customer lifetime value (CLV)

1. Take advantage of first-party data

2. Optimize onboarding

3. Prioritize customer support

4. Increase average order value

5. Ensure good communication

6. Stay relevant

Creating value for lifetime

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What is customer lifetime value (CLV) and why do you need to measure it?

Customer lifetime value

How do you measure CLV?

Measuring actual CLV:

Measuring predicted CLV:

Benefits of CLV

Further reading for beginners…

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The Benefits of Customer Lifetime Value: Why It Matters

The Benefits of Customer Lifetime Value

How to Reap the Benefits of Customer Lifetime Value

Increase Your Number of Repeat Customers

Optimize Onboarding

Provide Value Constantly

Retain Customers for Life Using Customer Success Software

How to Calculate Customer Lifetime Value says:

Customer Retention Optimization Strategies to Keep Customers Long-Term says:

Get the latest in customer success best practices

Important lessons for embracing customer lifetime value

1. Look as far ahead as possible

2. Don’t drill down too deeply for data

3. Use the right approach at the right time

Benefits and challenges of different CLV models

5. Find ways to appeal to other stakeholders