Why you should calculate CLTV
Posted: Mon Jan 27, 2025 10:07 am
In marketing, it is well known that attracting a new customer is 5 times more difficult than retaining an old one. The customer life cycle is used to calculate the monetary value that each of these cases entails. The objective is clear: to carry out appropriate and profitable actions for the brand. To do this, it will also be essential to understand the customer journey map well ; that is, the path and experiences that the consumer has at each stage of the purchasing process.
Calculating Customer Lifetime Value is essential to employing the appropriate resources for that particular business relationship and is closely related to loyalty. For example, a customer who has been buying the same brand of coffee for a lifetime is more profitable and therefore more important to retain than one who only buys it occasionally.
According to a study by Arya Systems, more than 75% of senior executives in the US say that CLTV is a very valuable indicator for their companies. Another study by Avaya reports that companies that already use Customer Lifetime Value in their digital strategies consider it to be a very effective measure:
- To justify investments in new technologies.
- Measure profitability.
- Monitor cost reduction initiatives.
- Compare customer segments with each other.
In order to calculate it, you need to obtain exact data on each client, have flexible technology and accurately define the values that will form part of the CLTV. Another very useful tool is the Buyer Persona , which allows us to keep an eye on who our ideal client is and see if they correspond with the current client and their life cycle.
How to calculate Customer Lifetime Value?
As another KPI, we need to define the values that help us determine the time and budget that we should dedicate to each client.
Customer Lifetime Value Formula(Image: Pinterest)
Some examples of values to take into account when calculating the customer life cycle according to Acucm are:
Value of your purchases
Percentage of customers who provide you with ideas.
Percentage of customers who talk about you, make you known.
Percentage of customers who make 'purchases'
Size of your social networks (number of contacts, followers, activity on networks, etc.)
In any case, these values reflect what the customer can spend, the expenses we must incur to attract a new customer to our business or retain an existing one, etc.
Let's imagine that we have a hotel, in which we have a estonia phone number data regular customer, who visits us every summer and every Christmas, who comes accompanied by his family or a group of friends, depending on the occasion, and who, apart from staying, also reserves many of the dinners at the hotel, enjoys our spa service and uses us to reserve tickets to shows or museums in the city.
On the other hand, we have another client who visits us once every x years, only stays there and never uses any of the other services we have at his disposal. In addition, his only comment on TripAdvisor about our hotel is quite neutral, bordering on negative. Without a doubt, the value of each of these clients is very different for us.
Defining your own Customer Lifetime Value allows you to make the most of every point of contact that the customer has with your business, offer better service and encourage loyalty with appropriate and profitable actions for your company; establishing a path through which, if the customer temporarily uses the services or products of another company, they can return to us.
Calculating Customer Lifetime Value is essential to employing the appropriate resources for that particular business relationship and is closely related to loyalty. For example, a customer who has been buying the same brand of coffee for a lifetime is more profitable and therefore more important to retain than one who only buys it occasionally.
According to a study by Arya Systems, more than 75% of senior executives in the US say that CLTV is a very valuable indicator for their companies. Another study by Avaya reports that companies that already use Customer Lifetime Value in their digital strategies consider it to be a very effective measure:
- To justify investments in new technologies.
- Measure profitability.
- Monitor cost reduction initiatives.
- Compare customer segments with each other.
In order to calculate it, you need to obtain exact data on each client, have flexible technology and accurately define the values that will form part of the CLTV. Another very useful tool is the Buyer Persona , which allows us to keep an eye on who our ideal client is and see if they correspond with the current client and their life cycle.
How to calculate Customer Lifetime Value?
As another KPI, we need to define the values that help us determine the time and budget that we should dedicate to each client.
Customer Lifetime Value Formula(Image: Pinterest)
Some examples of values to take into account when calculating the customer life cycle according to Acucm are:
Value of your purchases
Percentage of customers who provide you with ideas.
Percentage of customers who talk about you, make you known.
Percentage of customers who make 'purchases'
Size of your social networks (number of contacts, followers, activity on networks, etc.)
In any case, these values reflect what the customer can spend, the expenses we must incur to attract a new customer to our business or retain an existing one, etc.
Let's imagine that we have a hotel, in which we have a estonia phone number data regular customer, who visits us every summer and every Christmas, who comes accompanied by his family or a group of friends, depending on the occasion, and who, apart from staying, also reserves many of the dinners at the hotel, enjoys our spa service and uses us to reserve tickets to shows or museums in the city.
On the other hand, we have another client who visits us once every x years, only stays there and never uses any of the other services we have at his disposal. In addition, his only comment on TripAdvisor about our hotel is quite neutral, bordering on negative. Without a doubt, the value of each of these clients is very different for us.
Defining your own Customer Lifetime Value allows you to make the most of every point of contact that the customer has with your business, offer better service and encourage loyalty with appropriate and profitable actions for your company; establishing a path through which, if the customer temporarily uses the services or products of another company, they can return to us.