As marketers, there’s almost nothing we love more than a good metric. We’re constantly crunching the numbers to find out what works, why it works, and how we can make it work more effectively. When it comes to marketing metrics, you might feel confident that you know all the heavy hitters—think sales growth, conversion rates, and customer engagement. But there’s one key metric that’s consistently overlooked: Customer Lifetime Value (CLV).
Customer Lifetime Value is a measurement of the net profit that can be attributed to one customer over the entire span of their relationship with your business. You might also see it abbreviated as LCV (Lifetime Customer Value) or LTV (Life-Time Value). For a quick-and-dirty estimation of CLV for your company, you can use this simple formula:
Average Annual Customer Profit x Average Duration of Customer Retention
As with most marketing metrics, you can dive far deeper into the numbers; here’s a closer look at CLV calculations from the Harvard Business Review. Before you break out the calculator, it’s important to understand why CLV is one of the most essential and under-appreciated metrics in a marketer’s arsenal.
A 2018 study reported that only 24% of marketers thought their company monitored CLV effectively, and 69% were aware that improvements could be made. That means a robust understanding of CLV gives you a valuable edge as your business grows. Accurate CLV calculations can offer key insights into acquisition spend, segmentation, long-term customer profiles, ad performance, customer retention, and future growth potential for your company.
Most importantly, CLV is a fundamentally customer-centric metric that unifies data from every corner of your business to provide a broad view of customer interactions. The wealth of data that you’ll discover when calculating CLV paints a complete portrait of a customer’s journey with your company. When you improve your understanding of CLV, you’ll gain thought-provoking new insights on where, when, why, and how your customers make their purchases—which may in turn change your perspective on the business as a whole.
How can CLV data work harder for you? Read on for five key ways CLV analysis can benefit your business, plus a deeper dive into the challenges of understanding this often-overlooked metric.
When it comes to calculating and using CLV effectively, corralling all the data you need is the biggest challenge—especially as your business grows. Scattered departments might have ownership of different information, stored in different programs, representing customers who interact with you on different platforms. All this adds up to a nightmare for marketers who want to understand CLV more clearly.
How can you solve this problem? Make a plan to unify your data. (This is where Clutch can help.) To calculate CLV more effectively, you’ll need a single, widely accessible dashboard that breaks customer data out of its silos and unifies it. Once that system is in place, you’ll also need qualified people to interpret the data and make an actionable plan based on what they find.
Now that you’ve taken a closer look at CLV, you’re ready to join the marketing experts who are making this key metric work harder for their businesses. Interested in learning how we can help you wrangle your data and take control of CLV? Talk to us.