Customer Lifetime Value (CLV) is the concept of measuring the worth of a customer relationship in its entirety and not solely on the basis of purchases made by that consumer. Understanding how to increase the value of your customers is a vital metric as it is far less expensive to recruit new customers than it is to retain existing consumers. In addition, enhancing the value of your current customers is paramount to growing your business while maintaining and increasing profit margins.
You don’t need to be a Nobel Prize-winning mathematician to calculate the value of your customers to your business. In fact, you just need to know what each customer can potentially offer your company over the course of your lifetime business relationship and how much their contribution is costing you.
Know your Customer Acquisition Cost (CAC)
How much money did you spend to attract your ideal customer? Consider what you invested in marketing & advertising, various promos, etc. If you run a bakery and your average CLV is $2,000, but your costs in attracting the customer exceed $2,000, your business is losing money. Furthermore, the costs to retain your ideal customer such as complimentary coffee, for example, is likely putting your business even further into the red. It’s time to start thinking about ways to boost CLV.
“The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%.”
The best way to boost CLV is to create positive, lasting customer connections by nurturing your consumer relationships:
- Seek to improve your customers’ experience.
This is a company-wide endeavor as the consumer experience is comprised of every interaction between your brand and your ideal customer. Every aspect from store visits, purchases, types of products you sell and your marketing strategy must be carefully monitored and managed, continually tailored to what your customer wants in order to earn their lifetime loyalty.
- Incentive consumer loyalty.
Loyalty programs are great for earning repeat business, especially when they present in the form of discounts or BOGO offers. Punch cards, points systems and coupons can yield fantastic results when well thought out and expertly executed. Consumers like to feel rewarded for spending their time and money on your products and services.
A little appreciation goes a long way. Design a system for rewarding your best customers whether via free shipping, top-tier benefits or early access to your newest products and services. All consumers want to feel like a VIP when they walk into your establishment. Treat customers who spend the most at your store or business and learn all you can about who they are personally. Make them feel like extended family and offer them pricing advantages in return for their loyalty.
- “Upsell” is NOT a dirty word.
No one likes to be upsold, however a wise and prudent business professional will know how to generate additional sales upon closing out a regular purchase. Don’t be afraid to offer suggestions and recommendations regarding products in which your customers might be interested. Failure to do so means they will likely go somewhere else to make those purchases. Seize the moment and make the recommendations in a way that is helpful, courteous and thoughtful toward your consumers’ needs. Remember, upselling is the art of masterful persuasion. Therefore:
| 1. Choose the right upsell. |
2. Don’t be pushy. |
3. Make the upsell relevant. |
4. Incorporate a sense of urgency such as, “this offer expires in 24 hours”. |
5. Limit price increases. |
6. Offer free shipping. |
7. Incorporate a free trial period. |
8. Offer substitutions when applicable. |
9. Always follow up after the purchase.
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- Don’t be afraid of unhappy customers.
Always close the loop with unsatisfied customers. Let them know that their poor experience with your brand matters to you because THEY matter to you. Be proactive addressing complaints before they escalate to poor word-of-mouth reviews regarding your business. Don’t let your relationships with your unhappy customers completely fall apart because you were fearful of righting wrongs and making targeted efforts to listen to their complaints, making improvements accordingly. Customers want their opinions validated. This simple approach is often the strongest method for retaining lifelong customers.
- Amp up your email marketing campaign!
Email marketing is often the primary means by which business owners establish and maintain customer relationships. With the ability to schedule emails months in advance, very little is required to build a powerful digital campaign while fostering consumer connections. Furthermore, the success rate for selling to a current consumership normally falls within a 60-70% range while the likelihood of selling to a new customer dips to 20%. Clearly, email wins in enhancing CLV.
- Segment email lists by CLV: “very profitable”, “profitable” and “unprofitable”.
- Upsell customers via email product recommendations.
- Schedule follow-up emails for customers containing purchase recommendations relevant to the last product purchased.
- Compose emails that provide education regarding products purchased.
- Offer email discounts, coupons and promos to new and loyal customers.
- Provide special occasion discounts for VIP customers – birthdays, anniversaries, holidays, etc.
- Compose intentional email messages with purpose as an occasional respite from “salesy” digital messages.
- Consult with your marketing professional re: crafting an effective, scheduled email marketing campaign.
Final Thoughts
Customers know when they are valued. If you truly value your consumers, your profit margins will increase. Develop a strategy for expressing appreciation to your customers on a consistent basis, continue to listen to them in order to offer them what they want and need, and deliver excellent, personalized customer service and your CLV will continue to soar.
