The customer lifetime value (CLV) or loan-to-value (LTV) and its role for business development

Customer Lifetime Value (CLV): Why is this Indicator Important?

You can endlessly try to convince yourself and others that every customer is important to your company. But it's much better to know for sure that each buyer increases the company's profit, usually in amounts averaging over $1,000 for repeat customers. Using the customer lifetime value (CLV or LTV) metric, you can estimate how much money a customer will bring to the company from their first purchase to their last.

Information about the lifetime value of customers allows businesses to choose the right direction for future development. It's especially important for companies that are focused on long-term interaction with customers.

Customer Lifetime Value (CLV)

How does LTV help you run a business?

CLV helps you understand how customers differ from one another. Information about the lifetime value makes it possible to target customers more effectively. It's important to understand that, in general, this metric provides more data than simple statistics. Based on this information, you can clearly understand the entire history of each customer's shopping habits: where and when, for what reason and price, with what frequency, etc.

How does LTV help you run a business?

Here are a few reasons why the LTV indicator is necessary for business:

1. Allows you to estimate the value of the customer over time without restrictions (not only with the first purchase)

2. Improves customer retention methods. For example, it pushes you to lower prices if you need to increase your LTV level.

3. Helps you easily develop a strategy to attract new customers

4. Improves behavioral triggers. This metric allows you to understand what drives customers to make their first purchase. That data can be used to persuade other users to buy.

5. It helps allocate resources to focus on customers that bring the maximum amount of profit.

6. Allows you to calculate the maximum financial contribution of each customer.

Unlike the Consumer Loyalty Index (NPS) and Customer Satisfaction Index (CSAT), LTV is directly related to finances, but not to intangible things.

The CLV indicator is a great option for pushing customers to take action, such as buying a subscription. It's important to study the lifetime value of the consumer if your relationship is ongoing.

Improving with customer lifetime value

Venture capitalist David Skok claims that many start-up firms fail because they don't realize the value of LTV or simply don't want to take it into account. As a result, the cost of attracting a customer outweighs the lifetime benefit. Based on this, we can conclude that it's important to work on CLV enhancement methods responsibly.

The LTV metric is about building strong customer relationships. To improve business performance, you need to develop a connection with the consumer.

Customer lifetime value

Let's take a look at a few ways to improve customer relationships:

1. Increase the level of service. Invest in the customer experience. Customers form opinions from each case of customer-brand interaction. Monitor, listen, and make changes to increase customer loyalty.

2. Implement a loyalty program. Provide discounts and bonuses. Develop applications to issue plastic cards.

3. Encourage better consumers. Offer free shipping, give access to exclusive products, etc.

4. Turn dissatisfied customers into loyal customers. Communicate with customers to repair any damage to the relationship.

Have you already thought about calculating the lifetime value of a customer? If not, then it's time to take the first step. This Evinent Analytics service will allow you to track each customer's path from viewing the product to making a purchase. Evinent facilitates this by setting up blocks of your recommended products on your site. Find out more information here.

Evinent GmbH is a Germany-based company specializing in platform development for mobile devices and delivering B2B/B2C solutions without compromising on outstanding user experience. At Evinent, we take pride in transparency and detailed planning throughout the entire process. Our goal is to empower our customers to increase profits, expand their businesses, and drive growth.
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