How to Use Customer Lifetime Value To Improve Investment Decisions?

Profits that are generated during the retention stage of the customer relationship is referred to as the customer lifetime value and customer retention equity. We know that the Customer Lifetime Value is the most important metric for each company. This represents the value of the organization’s relationship with their customer.

Customer Lifetime Value appears like those vague marketing data terms just analysts understand. However, with time, I have learned this is a lot more than the spreadsheet label. It is a tangible and actionable metric that is worth paying attention to as it helps you to make the right decisions that make one thing that you want to help and reach the goals of your company: higher profit. In today’s article, I will share some important points on how to use CLV— and revolutionize the business.

Using CLV to Decide Marketing & Promotion Budgets

Some companies plan to create a budgeting framework for every audience based on the CLV. For instance, the company generally may look for over 10% – 20% ROI for getting new clients. Another way of looking: for each dollar that you spend on the client acquisition, there must be 5 – 10 times return.

Let us use 10% as an easy example. Suppose the client is totally worth $10,000 CLV, then the company must be agreeable to spending over $1,000 to get the client. The retention costs (marketing & sales efforts) over the life of the client must get calculated to make sure of the satisfying profit. You will see how it helps to determine what campaigns or projects to invest in or how far you can go in the efforts to get & retain the client. It will be quite helpful in setting specific goals for long-term sales.

CLV Provides Better Metric for Investments

The lack of resources and budget is a top challenge for professionals today. And to justify the improved investment, leaders have to make the data-driven case, especially for the new investments. Organizations may apply CLV at the tactical levels, boosting their margins by allowing them to make investment decisions, which they can balance against the potential return. As it includes historical data & allows you to predict future outcomes, the CLV helps you to make the compelling, data-driven deal for future customers spending.

Analyzing the customer experiences through the lens of the CLV allows you to identify various opportunities for optimizing the CX strategy. This will help you to prioritize such initiatives based on the impact that they may have on KPIs, which matter most to the team & business.

CLV Helps in Nurturing Current Customers and Acquiring the New 

Many companies mainly focus on an old notion it costs five times more in getting the new customer, however, while doing it, are they losing their focus on connecting to their customers as well as delivering high value, now & in future? Decisions about customer acquisition, development and retention must not be driven by cost considerations – they must be based on the future value. It does not mean that cost-quotient must get ignored, however one must not at all ignore the relative potential & value of getting the new customer.

How Can You Leverage Your Customer Journey Analytics For Influencing CLV

The customer journey analytics network allows you to apply the journey-based approach & advances your capability of understanding your customer behaviour. This connects several data points on each customer over various channels and with time. The customer journey analytics program allows you to take the data-driven approach in managing, measuring as well as optimizing the customer journeys.

As these solutions will work with the current tech stack & ingest data on any customer, it becomes easy to follow the customer when they progress over their journey. It is such ability that allows the root cause analysis and revealing why the customers behave in some ways.

Power of CLV

Take CLV of the customer franchise for a current year, and subtract CLV of the customer franchise for its previous year. Divide the number by the current year’s marketing costs. Now, you will have your return on the marketing investment figure.

If you are looking to improve the CLV, make sure you select these levers and they improve your revenue for every customer, reduce your cost to get & serve, and increase the customer retention rate.

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