Your customer’s lifetime value (CLV) is a critical metric for growing small business. This metric can help you know if you are flying or coming down in flames. If there is an imbalance between your customer’s acquisition cost and the customer’s lifetime value your business could be in trouble.
How do you calculate your customer’s lifetime value?
To work out how to calculate your customer’s lifetime value you need to use this equation:
Average amount per a sale X the number of repeat transactions X the average retention time in months or years for a typical customer = CLV
This equation is a basic equation to give you a rough idea of your customer’s lifetime value. For a more in-depth look at the calculation of your customer’s lifetime value, visit this Hubspot article.
You can also go on to Google analytics to see what your customer lifetime value is.
Now that we know what our customer’s lifetime value is we need to move to the next question:
How do we increase the customer’s lifetime value?
There are three strategies to increasing your customer’s lifetime value. You can increase the amount of sales per order, you can increase the amount of orders or you can try to reduce the costs to serve a customer. When implement these strategies there are seven factors to consider:
Make your customer feel special
Your customer is key to your success. When you make them feel pampered and special they will be more willing to buy more or to do free advertising for you through word of mouth. You can make your customer feel special by featuring them using your product on your social media pages.
Personalize your offering
If you send email communications to your customers make sure it is personalised. You can do this by adding their name to the email. You could also look at their history of purchases and send them a special offer on something that they regularly buy from you.
Re-engage old customers
You may have some customers who haven’t bought from you in a long time. You could send them an email with information about your products and a special offer on something that they have purchased from you before.
Keep your customers informed
In recent years the hard sell has not been as effective as it was. It is better to become the guru in your industry and encourage customers to seek you out for information and in turn be encouraged to buy from you.
Encourage brand loyalty
Start up a loyalty program. These are very often used in the hospitality industry where you get buy six coffees or meals and get the seventh one free. By creating these loyalty programmes people will be more keen to buy from you.
Create a customer-centric return policy
How easy is it for a customer to return a defective good? It is important to have easy ways for your customers to return goods which they are not happy with. When customers are able to return products easily they will view your brand more favourably.
With social media, email and phones, there is no excuse for a customer not to be able to receive an answer to their questions timeously. Some businesses have 24/7 customer service. But even if you attend to customer enquiries only during office hours ensure that you have different ways for your customers to be able to contact you and someone who monitors these contact points.
By considering these seven factors you will be well on your way to increasing your customer’s lifetime value.
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