Every successful business knows that it is very important to know the value of a customer; this is true whether you are running an e-commerce platform, a SaaS company, or an online marketing agency. The value of your clients can be the determining factor in whether you succeed or fail.
Customer lifetime value is a widely-used concept and it can help you be more productive in generating new leads. This concept is also called customer equity, revenue stream, and the net present value of the customer.
What is customer lifetime value?
Customer lifetime value (CLV) is a metric that calculates the total amount of revenue generated by a customer over their lifetime. It’s important to have a number like this in mind when you’re trying to get new leads because it allows you to make informed decisions about how much you should spend on marketing, where you spend your money, and what kind of content you produce.
What is the customer lifetime value formula?
The first step is to calculate your customer lifetime value. In this case, the formula you’re looking for is:
[Customer Lifetime Value] = [Average Order Value] x [Customer Retention Rate]
The more customers you retain, the higher your customer lifetime value will be. If you have a lower than average customer retention rate, then your customer lifetime value will also be lower than average.
So how do you improve this? You need to find ways to make it easier for customers to buy from you and stay loyal over time. This can include things like offering better product descriptions or descriptions of benefits and features, or creating a better shopping experience overall by making sure that the checkout process is easy and quick.
Importance of customer lifetime value in getting new leads
Customer lifetime value gives you a sense of how much money a customer will be worth over the course of their relationship with your brand. It’s a number that can help you make smarter decisions about how to engage with customers—and, importantly, how much to spend on getting new leads.
The reason why this is important for getting new leads is that it can help guide your strategy toward more cost-effective options–like creating compelling content or offering freebies–as opposed to expensive ones like cold-calling or buying ads.
The customer lifetime value is the sum of the value you generate from that client over the time they engage with your brand. For example, if you have a sales funnel that takes three emails to convert a visitor into a new lead, your value will be determined by how much you make from each of those emails (plus any other profits generated over time). The more leads and clients you lose, the more money you’ll have to spend to replace them.
This reason alone is why you should try to find out and determine the lifetime value of each client. It also has other benefits aside from helping you decide whether it is necessary to continue marketing to a particular customer. In fact, there are plenty of benefits that can come with this concept—especially if you do it right.