Customer Lifetime Value

When you have a business, no matter how big or small, you know that you need to pay attention to certain key stats. And one of them is customer lifetime value.

What Is Customer Lifetime Value? Simply put, customer lifetime value is the total worth of a customer to a business during the period of their relationship. While you may think that the best metric to keep track of your customers is the customer acquisition cost, the reality is that it's not. Why? Well, it's very simple. As you probably know, the customer acquisition cost tends to be extremely high. This is why most companies are always looking to increase their returning customers. After all, the cost of keeping your existing customers is a lot lower then it is to get new ones.

How To Measure Customer Lifetime Value One of the things that you need to understand is that the customer lifetime value is an extremely important key stat to don't even look at it. The reason why we are stating this is that there are many companies out there who prefer to not measure the customer lifetime value. So, they end up dealing with the costs of untargeted marketing, inadequate systems, and segregated teams. However, when you are able to get all your data in just one place, then determining the customer lifetime value will be a lot easier.

In order to calculate the customer lifetime value, you will need to:

  • Identify the points at which the customer sees the value
  • Use these record to create a customer journey
  • Calculate the revenue at each point
  • Add them all together during the lifetime of the customer

While this may be a little complicated at first, a much simpler formula to determine the customer lifetime value is the following one: Customer Lifetime Value = Customer Revenue - Costs of acquiring and serving the customer

This is in reference to a great book by Michael Stattelman
Get your copy of Meta Leadership!

Why Is The Customer Lifetime Value So Important For Your Business? While customer lifetime value seems a very technical term, all you need to understand is that it represents the value that your customer provided you with, during the lifetime relationship with you. By completely understanding the customer experience and by measuring al the feedback that you are getting as well as taking into consideration your touchpoints, you will be able to understand what drives the customer lifetime value.

Knowing How Much Your Customers Are Costing You The truth, when you think about the customer lifetime value, you need to understand that this is a great metric to keep track and optimize. However, you also need to think about how much each customer costs. In order to determine how much a customer costs you, you need to use the Cost to Serve metric. The reality is that when the cost of serving an existing customer gets very high, you need to pay attention since you may be losing even though you have a high customer lifetime value.

Posted In:
Strategy Customers

1 Comment

  1. Itachi Uchiha
    June 05, 2019

    Yet again Molly Nijmeijer, another great read. Thank you so much for these articles.