With the Customer Lifetime Value (CLV), which is important from a business point of view, you can check which customers are profitable are or you are the bring the highest yields. Profitable investments in successful customer relationships are the basis for a healthy Growth of your business. Combine the concept of Customer Lifetime Value and the benefits of Marketing Automation for your economic success.
What is Customer Lifetime Value?
The areas of finance and Customer Relationship Management (CRM) shows the average contribution margin a customer delivers to your company over the entire period of the customer relationship. The calculation of the "customer lifetime value" takes into account past, current and future purchases one.
Based on the value, you can adjust and cost-effectively manage customer management, marketing and sales strategies.
Customer Lifetime Value helps you, recognize important regular customers. You will learn with which customers you will achieve the highest sales in the long term. The formula for calculating the CLV is simplified:
Customer Lifetime Value = (average value per purchase x repurchase rate) x duration of business relationship - (costs for customer acquisition & customer care)
Which value is to be regarded as positive depends to a large extent on the individual business model of your company as well as your business management intentions. The goal must be to create Customer Lifetime Values for customers. to bring to positive valuesthat enable you to act without financial constraints and to implement your strategies in a targeted and structured manner. A customer lifetime value that is only just above zero is positive, but it does not allow you to grow.
Uncertainties regarding the calculation of customer lifetime value remain due to the estimation of future purchases. They anticipate how customer relationships will develop in the future. The calculation is based on values from the purchase history or general guideline values by customers of the same customer group. Depending on your business environment and market situation, such a forecast may of course be inaccurate.
If customer lifetime value is considered across the entire enterprise, assumptions such as the following, customized for your market, should be considered. Example:
- A company has about 20 percent inactive customers and clients.
- Around 60 percent of customers are active customers.
- Only around 20 percent of customers are very active and profitable.
Benefits of the Customer Lifetime Value
Unlike the key figures sales and return, which relate to short-term performance, CLV helps you look to the future. Based on reliable data, you can realistically assess your financial situation and the value of your clientele. If you know the net profit you generate over the course of a customer relationship, you can plan what investments you will make in existing customer relationships in the future.
New customer acquisition
In the area of new customer acquisition, the customer lifetime value helps you to assess which customer groups are particularly interesting for your company and how high your marketing expenditure should be at most. Companies that prefer inbound marketing and can demonstrate a high degree of automation have an advantage due to consistently low marketing costs. For example, entry-level offers with a deliberately low or even negative contribution margin might only be worthwhile for your company if the customer lifetime value is to be estimated highly.
Marketing and sales
If you want to increase customer lifetime value, there are certain aspects to consider. It is crucial that you target your marketing and sales strategy to meet the needs of valuable customers. In addition, you should nurture your regular customers according to their priority. In combination with marketing automation, you will improve loyalty to your company and trigger targeted repeat purchases.
Increasing customer lifetime value is also a benchmark for the success of customer-specific marketing and sales measures.
Marketing Automation and Customer Lifetime Value
If you know who your non-profitable, profitable, and highly profitable customers are, you can take targeted action, make segmentations, and adapt content offers. Marketing automation offers you a wide range of tools to serve each customer group according to their individual value through defined workflows. The higher your level of automation, the easier it will be for you to serve even less profitable customers without using too many resources. In this way, you maintain the chance that they, too, will move up into the category of profitable business relationships.
The following are some of the ways marketing automation can help you increase customer lifetime value:
- Personalized email marketing allows you to send interesting content to your customers. The continuous flow of information ensures that your brand and your products and services are remembered.
- Seasonal offers tailored to customer interests, special promotions, loyalty and referral programs, as well as coupons and discount codes are tried and tested means. This enables you to encourage active and inactive existing customers to make repeat purchases over a longer period of time.
- Complementary offers or cross- and upselling offers enable your customers to purchase products and services that match a purchased product.
- Customer service and complaint handling are excellent ways to convince customers of your reliability and competence and to encourage repeat purchases.
Conclusion - Do not underestimate customer lifetime value
It pays to invest in the calculation and optimization of customer lifetime value through marketing automation. Customers who continue to generate high-yield sales in the future help your company to grow, secure your liquidity and open up room for maneuver. Marketing Automation software provides you with values with which you can calculate individual Customer Lifetime Value and strategically automate and optimize customer acquisition and customer care through defined processes.