For all businesses, acquiring new customers is often the main priority. But why not tap into the potential revenue of your existing customer base, too? Increasing customer retention by just 5% can increase profits anywhere from 25-95%, making a huge impact on your bottom line.
An easy place to start is by taking a hard look at your average customer lifetime value (CLTV). Understanding, and working to improve, this important metric allows you to bring in added revenue and increase customer satisfaction and loyalty—all at the same time.
What is Customer Lifetime Value?
Measuring customer lifetime value is a must for both e-commerce and brick-and-mortar businesses. CLTV tracks how much money a customer spends throughout your entire relationship with that particular customer.
CLTV is invaluable for businesses of all sizes because it’s a more cost-effective way for businesses to make money. Tracking CLTV enables businesses to determine which customers are spending the most and allows them to further invest in those relationships. Fostering this brand loyalty not only improves brand awareness and recognition but also can help to increase revenue over time and decrease the cost of customer acquisition ratio.
How Do You Calculate Customer Lifetime Value?
There are a few different CLTV metrics that businesses can track:
- Overall CLTV. This determines the customer lifetime value of all of your customers.
- Individual Customer CLTV. This determines the lifetime value of a single customer.
- CLTV for Customer Segments. This determines the lifetime value of a particular customer segment.
No matter which type of CLTV you choose to calculate, you’ll need a few important data points to start: average order value and purchase frequency. Multiplying these two numbers will give you your average customer value.
Once you’ve determined the average customer value, you can then multiply that number by the average customer lifespan, and you’ll have the lifetime value. You can also choose to subtract the cost of customer acquisition to get a clearer picture of net revenue.
Ways to Increase Customer Lifetime Value
Capitalizing on opportunities to increase customer lifetime value can help you drive revenue and keep customers happy for a win-win solution. Consider using these tried-and-true methods to increase your CLTV.
Put Customers First
Creating a seamless and enjoyable customer experience is one of the easiest ways to keep customers coming back for more. From easy check-out flows on your website to favorable return policies, making things as easy as possible for the customer should be your number one priority. This ensures customers always have a positive experience and can help encourage them to return to your brand over and over again.
Always Think About the Upsell
Increasing purchase totals is a fast and easy way to amp up your average order value—which, in turn, also increases customer lifetime value. Offer upsells that will have customers adding on to their orders, like premium upgrades. You can also try to cross-sell related products to round out the customer experience.
Create a Loyalty or Referral Program
Loyalty programs help keep your most engaged customers returning again and again. These programs are known to be uber-effective in increasing customer retention, and as a result, increasing customer lifetime value. Consider allowing customers to accrue points or cash back the more they spend. This incentivizes them to spend with you instead of a competitor. You can also reward them for non-purchase actions, like leaving reviews or sharing your brand on social media to increase brand awareness, making it a win-win solution.
Invest in Marketing
Marketing is all about creating and fostering customer relationships, which is one of the most important factors in increasing customer lifetime value. Create a comprehensive marketing strategy that includes email marketing, eye-catching social media and blog posts, and personalized content to help up engagement. Approaching your marketing with this 360-degree lens allows you to build a stronger rapport with your audience, making it vital to helping drive higher CLTV.
Offer a Branded Credit Card
Branded credit cards, sometimes called private-label credit cards, are an amazing opportunity to foster added customer retention. Like a loyalty or referral program, these cards often offer consumers added perks like additional discounts, free shipping, and points. These perks reward customers for their frequent purchases, helping to encourage them to spend more with your brand.
Tandym makes it easy for merchants of all sizes and across all industries to easily create a private-label credit card for their customers, so it’s simple to get started. They also offer a .5 percent processing fee—compared to 2-3 percent for regular credit cards—allowing merchants to save up to 80 percent per transaction.
Request a Tandym demo today to learn more about how you can efficiently increase your customer lifetime value.
Sources
Outbound Engine - Customer Retention Marketing vs. Customer Acquisition Marketing
Hubspot - 7 Steps to Create a Complete Marketing Strategy in 2023
Forbes - How To Upsell Any Customer
