Customer Lifetime Value For Dummies

We look at CLV as the profitability of a customer for an organization throughout the utilization of a product or service. We could look at this as a type of on-going transaction with a brand or company. The nature of the said relationship is either ephemeral or lasting, depending on the value of a brand to a customer. 

While we often look at the CLV method from a customer standpoint, it is important to understand that the calculations are made at a business level. From the brand manager’s standpoint, CLV is a three-step process. 

To Target the Customer?

At this stage of the process, Managers need to distinguish whether the customer is worth the business costs and efforts. Potential profit is a great way to identify the health and threshold of this potential relationship. By understanding the potential profit generated by a customer over the entirety of their business exchange life with a brand, managers can determine if the juice is worth the squeeze.

Through CLV analysis and transparency within their accounting departments, managers should be able to work on selecting the best customers based on projections, customer network externalities, or referrals. 

Acquire Receipts

Once a successful transaction has been endowed upon the business owner, they establish themselves a POS (Point of Sale) for that customer’s return business and future needs.

By analyzing key metrics around our margin, or what we expect after breaking even from costs, we can understand the Net Profit around a customer’s life cycle.

Whatever the length of that cycle, managers are keen to monitor fixed expenses as these could firsthand increase their Net Profit per customer. Learning how to attract new customers and meeting their needs can also positively impact a brand’s cash flow.

Satisfy Long Term Needs

As brands maintain their relationships with customers, it is safe to project maintenance and nurturing will be required. The path along the way of a successful business is doing a better job than competitors, and it is at this stage that so many organizations fail.

Brand managers would be savvy to engage with past customers and patrons just as fiercely as new ones. The deep value of the customer, or the gold per-say, is in adjusting the strategies around meeting their needs throughout a business relationship. 

This allows brands insights around initial sales, targeting strategies, satisfaction terms, and improvement capabilities. This will increase visits, purchases, referrals, and repurchase inadvertently. All of which can be invaluable, and discovered by all brand managers, if they just give the customer some tender love and care.