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Customer Lifetime Value (CLTV)

Customer Lifetime Value

Customer lifetime value (CLTV) predicts revenue gained over the course of each customer’s entire relationship with your brand.

How to Calculate Customer Lifetime Value

To calculate your customer lifetime value, multiply the average value of a purchase by the number of times a customer will buy each year and then multiply that number by the average length of a customer relationship in years.

customer lifetime value equation
Customer Lifetime Value Equation

How to Increase Customer Lifetime Value

There are a number of ways to increase customer lifetime value and many of them point back to improving and iterating on the personalized experience you serve your customers and potential customers. Because CLTV is a measure of customer loyalty, you can optimize this metric first and foremost by focusing on retention efforts. 

A few ideas for increasing customer lifetime value:

Invest in retention

Investing in existing customers, offering loyalty programs, and overall nurturing existing customer relationships will pay dividends in extending the lifespan of customer relationships, therefore positively impacting customer lifetime value. Loyalty programs with points are an easy way to reward customers for repeat purchases and incentivize them to continue to shop with your brand. Referral codes or programs are another way to ensure customers feel connected to your brand and invest mutually in the relationship, strengthening their loyalty and spending potential.

Create an iterative feedback loop

Along the lines of investing in retention, creating an iterative feedback loop can help ensure you’re keeping up with the latest desires and needs of your customers. A feedback loop can help customers feel more invested in your brand and will ensure that your product and offering evolves with their expanding needs.

Sending a simple survey, asking them to answer a simple poll, or for more qualitative feedback on a survey or form are great ways to have customers actively engage with focused questions on specific topics or products. This feedback not only enhances their experience but is invaluable as you gather insights for further product iterations and releases.

Improve Average Order Value

Focusing on improving your Average Order Value (AOV) will positively impact and influence the growth of your Customer Lifetime Value. Cross-sell and upsell promotions, on page offers and recommended products right on the checkout page can go a long way in boosting this metric.

Ramp up email marketing

Another way to improve your customer lifetime value is by strengthening your relationship with customers through email marketing. Email marketing is not only a great way to keep subscribers engaged with your company even if they haven’t visited your site recently, but also a great way to entice customers to make repeat purchases. Segment your email list based on purchase history and target those who have made a purchase before differently than those who are still on the fence about buying.

Additionally be sure to create a strong cart abandonment email program —this will allow you to remind would-be customers to complete their purchases and encourage returning customers to click “buy now”, thereby boosting your customer lifetime value. There is no shortage of email marketing strategies you can implement to positively impact your customer lifetime value, but these are a great starting point!

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