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How to increase customer lifetime value?

Do you know what your Customer Lifetime Value is? Don’t know how to calculate it? No worries – we got it all for you here!

Customer Lifetime Value is probably one of the most disregarded business activities. Only 34% surveyed by Criteo enterprises in the UK are completely aware of the term CLV and over 69% believe that they could have calculated the CLV better.

You might be wondering why is the CLV being considered an important estimation, especially for the e-commerce retailer operating as a SMEs, why is it being ignored so often and what can you do in order to improve your CLV without spending too much time and money?


What is Customer Lifetime Value?

The CLV is a metric that is being used to define the profitability of customers, based on their purchasing data. Thanks to that information, the company gains a clue regarding the expenses of acquiring new customers and profits which can be generated from each type of retention of a certain segment.

Shortly, based on the CLV estimations, you would be able to find which group of customers needs to have improved offerings, so that they can remain to generate long-term profits for the company and contribute to its growth.

In other words:

CLV brings an overview of how much the company should be capable of spending for a customer acquisition according to their importance for the business.

It also allows you to segment your customers based on their values (the higher a value of a single customer, the more effort you should put into this cooperation).


How to calculate the CLV?

You might be worried about the necessity to perform long and complicated calculations in order to find the right CLV, so you keep neglecting possibilities the metrics can bring to your business, thinking that it might consume too much time. However, the calculation might be performed fast and efficiently with the assistance of the CDP software offered by Custimy which would present needed data in a precise way. The only thing you would need to do is to place established data within this equation:

Annual revenue per customer multiply by the number of years minus cost of customer acquisition.
Annual revenue per customer X by number of years – the cost of customer acquisition

Sounds easy, right? The equation is short and can contribute to the creation of a huge competitive advantage for your business if used correctly.


How to improve the CLV for SMEs?

Many companies, including large enterprises do not pay exceptional attention to possibilities the CLV offers, therefore, if you are a Small or Medium enterprise this metric is definitely something to consider if you aim to raise the competitiveness of your business.

The frequent reason for the CLV incapacity concerns the inability to create a unified customer’s profile. That leads to the creation of a huge gap between companies’ needs and their capabilities, and as a consequence, it calls for finding the right solution.


Automatization of customer data analysis

The most common mistake of companies working with CLV is a method they are likely to employ to find the right segment. Accordingly, they tend to use spreadsheets and calculate the CLV manually which creates a lot of inaccuracies resulting in wrong estimations.

Moreover, the information needed for resolving the equation is usually guessed or outdated; trends and customers’ preferences are changing nowadays more than ever before, thus you would need to use the real-time data if you aim to catch up with current tendencies.


Advantages of the Customer Data Platform

The best a company can do is to focus on automatization and leave statistics generation to specialized software, most particularly to the Customer Data Platform. The CDP’s mission is to find in-depth information regarding customers’ insights in real-time and translate them into comprehensive data which later can be analyzed by the strategic group within your company.

The CDP does not only assist with discovering the right target but also helps with the creation of personalized and unique service based on the precise data. Afterward, you would be able to offer the best possible service to the selected group of customers who are going to bring the company’s greatest profits out of all segments.

At Custimy we specialize in the mentioned activity by delivering the most accurate data to SMEs in Nordic countries in order to help them find and grow their CLV while maintaining personalized service to their best customers.


How Customer Data Platform can improve CLV?

It is worth noting that brands which use CDP software are 2.5 times more likely to increase customer lifetime value!

Everything about the CDP might sound perfect, but you may be still wondering how the Customer Data Platform might actually improve your CLV in more practical ways.


CDP and Personalization

First of all, the CDP will help you find the right target by collecting, consolidating and analyzing customer data from all data sources possible. Afterwards, it gives you a complete and accurate picture of who your customers are and which segment would be the most valuable for you to focus on if you aim to grow your profits sustainably.

Thereafter, you are also able to segment clients based on their lifecycle stage and perform plenty of other detailed tasks depending on your goals.

How Personalization helps improve CLV:

  • Provides relevant content in a customer journey
  • Personalized content creates a deeper connection with a customer
  • Builds a strong brand


CDP and Service Customization

Secondly, based on all data collected you are able to customize your offerings in the digital sphere. The data comes from such sources as social media, transaction data, events and emails, meaning that you are able to personalize your message on each and every platform to all customers you have.

That option introduces new opportunities for improving your customer service, as well as your offering. All in all, the possibilities for your business are endless!

How Service Customization helps improve CLV:

  • Creates trust among clients
  • Buyers are willing to pay more for a customized service
  • Raise customer satisfaction


CDP in E-commerce

The CDP plays a significantly crucial role in the e-commerce retailer market while calculating CLV. Thanks to the software you are able to find what your customers had placed in their shopping cart which can be used later for triggering product recommendations to the selected group of customers based on their value through such means as customized emails.

E-commerce business generally can be characterized by a short sales cycle and high frequency of products sold, leading to the generation of a vast number of data to analyze. Traditional ways of gathering data can be insufficient for this type of business, making CDP and its infinite data analysis possibly the best option for you.

CLV in E-commerce:

  • Acquiring a new customer is more expensive than retaining an existing one
  • Knowing clients’ individual CLV would help you detect which segment you should maintain, converted or ignored
  • Helps creating a right strategy (customers with high CLV should receive better offers)


CDP in Communication

Communication is a key. The CDP would guide you towards the customer’s preferable channel to connect, based on the in-depth historical data of your client. The most adequate information flow might be done through the website, social media or email, depending on personal preferences of your customer.

The right communication means would undoubtedly increase the loyalty, speed of your correspondence, and help maintain personal relationships with a single client.

How good Communication helps improve CLV:

  • Personalized communication with your customer would improve your CLV
  • Excellent customer service is extremely important in maintaining a convenient communication flow
  • Implementing omnichannel strategy (communicate with clients in various platforms, such as websites, social media sites, apps, etc.)


CDP and Customer Loyalty

Reward your most loyal customers with a unique offering! The Customer Data Platform is going to be a great assistance for you in that sphere too. The CDP would help you choose the suitable and personalized reward which would definitely gratify your customer. As things go, you are most likely going to expect repeat transactions from the targeted customers.

How Customer Loyalty helps improve CLV:

  • Helps retaining customers
  • Enables you to build a sustainable brand with a solid customer base
  • Converts your shifting customers into loyal ones


CDP and Customers’ Conversion

Let’s not forget about less profitable customers who likewise can turn out to be useful for your business. The CPD would help you discover clients who do not bring desired profits, so that you could either try to convert them into loyal consumers by usage of the gathered data, or alternatively, you could start testing new deals before introducing them to the premium group of customers.

How Customers’ Conversion helps improve CLV:

  • Helps you recognize which customers do not intent to convert, therefore, you should not spend extra costs on this specific group
  • Helps you recognize which customers would convert and use your products more frequently (valuable segment)
  • Builds a sustainable long-term customer base


Low-cost CDP

In like manner, the CDP can improve your budget, since burdensome data research might be quite costly and time-consuming. 36% of surveyed businesses believe that classical monitoring CLV is too expensive for their business and they might be right, since many companies, especially SMEs cannot afford failure by performing incorrect targeting.


Future of CDP in the CLV

By any means implementing CDP within the Customer Lifetime, Value process calculation is going to become popular within the upcoming years both in the large enterprise sector and SMEs.

Currently, as many as 69% of companies are planning to increase their CDP investments within the next 2 years. Companies, especially SMEs are open to new solutions and innovations which would raise their competitiveness on the market and ground their strong position in the sector they are specializing in.

Are you one of them? Contact us and find out more about how you can effectively!


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