🤔 What is the Customer Lifetime Value Report?
While sales and revenue are definitely the right points to look at when measuring success, some other metrics, such as customer lifetime value (CLV) may well deserve some special attention. CLV gives you a valuable insight into your business’ present and future success.
Customer lifetime value is the average total worth to a business of a customer over the whole period of their relationship.
⚖️ How is Customer Lifetime Value calculated?
If you’re looking to measure CLV manually, you’d have to use one of the formulas and follow the respective steps. Let’s take a look at the two most popular ones.
The first formula is complex and time consuming:
CLV = Average Order Value x Average Number of Transactions x Average Retention Period
The formula includes 4 steps:
- Determine your average order value (AOV) by adding up all the orders in a selected time period and dividing them by the total number of transactions.
- Find out the average number of transactions per period.
- Measure the average customer retention period – how long an average customer stays with your company.
- Multiply the three numbers together and arrive at your CLV.
The second formula is as follows:
CLV = Total Revenue / Number of Customers
Calculating CLV includes 3 steps:
- Calculate the total revenue of your company in a selected time period.
- Find out the total number of customers in this period.
- Divide the total revenue by the number of customers and get your LTV.
If you want to get instant access to the Customer Lifetime Value Report plus other financial metrics that can help you reach your KPIs and make informed business decisions, try out Synder Insights, your all-in-one source of truth for e-commerce businesses.
With Synder Insights you don’t have to go through all of the steps and spend time calculating the numbers. To generate the Customer Lifetime Value Report, Synder goes through these steps automatically – the solution divides the total revenue of your business by the number of customers for a given period. The higher the number, the more returning clients you have.
Synder’s Customer Lifetime Value Report tells you how much value a customer brings to your business in the long run, as well as shows you how much you should be spending on acquiring a customer.
🔎 What do these numbers tell us?
There’s a direct correlation between CLTV and revenue – the higher the average amount a customer spends is, the higher their value is. A high LTV also indicates that you have loyal customers who return to buy more products over time. This fact also means that you don’t have to spend more on marketing campaigns since retaining customers is less expensive than acquiring new ones.
The Customer Lifetime Value Report gives you a snapshot of your customer’s behavior. Knowing CLTV helps you understand how to build more efficient campaigns and optimize spending.
📈 What can be done to grow sales based on these numbers?
Boosting CLTV is one of the primary objectives of any e-commerce business and learning about your customer base is the most basic step you should take. CLTV represents customers’ retention and satisfaction so make sure they’re happy with their experience.
There are multiple ways to maximize it:
- Offer loyalty and referral programs
Show how much you care about your existing customers by offering exclusive discounts, and they’ll be excited to return. What’s more, when they’re satisfied, they refer new clients to you, and you get the so-much-needed exposure to an already interested audience.
- Upsell and cross sell
Urging customers to buy a complementary or upgraded product or service, such as a top-of-the-line PBX system, potentially results in increasing your revenue.
- Offer easy returns
Returns and refunds can’t be avoided, just make sure the returns experience is a good one. Ultimately, the return policy says a lot about you as a business.
- Improve customer service
Put quality over quantity, publish useful content, scale up the problems your customers have and make sure they get the attention they deserve—your clients won’t forget the extra treatment. Those who are treated well tend to return the favor.
Knowing your LTV opens up new opportunities for your business. Let Synder Insights guide you on the way to higher revenue and customer success!