The value of the customer is a crucial variable in any marketing strategy. This concept allows companies to identify which of their customers bring the greatest long-term profitability, thus optimizing their resources and strategies. In this article we will address the following key points:
Customer lifetime value, better known as Customer Lifetime Value (CLTV), is a fundamental marketing metric that estimates the total revenue a company can reasonably expect to earn from a customer over the entire duration of its business relationship.
This value does not look at a single transaction, but considers both the revenue generated by the customer and their expected lifetime with the company. A detailed understanding of customer behavior enables companies to tailor their marketing strategies to maximize CLTV, thus ensuring a more profitable and lasting business relationship.
In addition, customer service teams play a crucial role in influencing the customer journey, contributing to the improvement of this metric and, consequently, to the optimization of 360º Marketing strategies.
Because not all customers generate the same value. While some may make sporadic purchases, others become frequent users who generate a high return on investment (ROI). Therefore, focusing solely on lead volume is not always effective if they do not result in valuable customers.
The Customer Lifetime Value (CLTV) is crucial to maximizing a company’s performance because it provides a clear view of the economic value that each customer can bring during their relationship with the company. Here’s why it’s so important:
In summary, measuring and optimizing CLTV not only helps maximize revenue and improve customer retention, but also contributes to a more efficient and less costly strategy for attracting and retaining customers.
The basic formula to calculate it would be as follows:
CLV = Average purchase value × Frequency of purchase × Duration of relationship.
Multiply the average value of a purchase by the number of purchases a customer makes per year, and then by the number of years that customer is expected to continue buying.
Now, in order to know these metrics, we must perform the following calculations:
Let’s talk about the most common methods for calculating Customer Lifetime Value (CLTV): the predictive model predictive model and the historical model.
Customer Lifetime Value (CLTV) can be affected by a variety of factors, ranging from frequency and value of purchases to customer loyalty and customer experience. Here are some of the most influential factors:
Optimizing these factors will help maximize CLTV and, therefore, improve long-term profitability.
From Boomit, as a performance marketing agencywe propose a series of strategies that help maximize the CLV of our clients:
Customer experience is one of the main factors that directly impacts CLV. A satisfied customer is more likely to return, make repeat purchases and recommend the company to others. Investing in improving the customer experience – through responsive support, user-friendly interfaces and quality products/services – helps increase both loyalty and CLV.
In addition, customer experience affects not only retention, but also upselling and cross-selling. A customer with a good experience is more open to discover and purchase other products from the same company.
Next, let’s review the most important metrics:
Customer Lifetime Value is an essential metric that allows companies to understand which customers generate the most value and, therefore, justify the investment in their acquisition and retention. At Boomit, we recommend focusing on the quality of leads and offering personalized experiences that generate loyalty, which in the long term increases CLV. In addition, having a solid strategy and an accurate measurement system is vital to optimize this key metric.
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