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Home Running A Business Small Business Marketing Calculating the Lifetime Value of a Customer
Anyone who has ever attended a marketing class has likely heard the mantra that it is easier and cheaper to retain a current customer than to attract a new one. And small business owners experience this acquisition-versus-retention scenario firsthand, as their loyal customers often become the lifeblood of the business.
While excellent guides have been about how to attract a new customer and, more importantly, keep that customer, this article will look deeper into the actual value of a customer who sticks with your small business.
“Customer Lifetime Value (CLV) is a crucial metric for businesses as it helps decision-makers see their customers through the prism of a long-term relationship, rather than a single transaction,” explains a business analysis from Forbes. “It’s also tied directly to the company’s bottom line, which makes CLV especially useful for marketers and customer success teams because it allows them to quantify the value of an organization’s customer experience (CX) efforts.”
When you’re able to identify the CLV for your business, you’ll be better able to understand how much you should be spending to retain your customers, forecast revenue, and measure the success of your business endeavors.
There are diverse approaches to getting a clear picture of your CLV, so let’s take a quick look at 4 of the most proven calculation methods.
Leveraging a calculation method will help you better understand how much money your customers bring in and how much you have to send out to keep it that way. But what small business owner is content with the status quo?
“Unsurprisingly, there’s real value in focusing on keeping customers around—and happy,” says Forbes. “For example, customers of subscription-based businesses provide 50% more value to those companies in years 2 to 5 than in their first year, according to the Boston Consulting Group.”
Just as there are multiple ways to calculate CLV, there are also diverse ways to enhance it. Here are some recommended strategies:
Whatever strategies you use, ensure you’re making CLV a priority. By applying this long-term mindset to your marketing, promotions, product development, customer service, and other aspects of your business, you’ll boost the sustainability of the crucial relationships that drive your success.
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.
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