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What is Customer Lifetime Value? Does it Matter for a Successful Small Business?

October 1, 2014 / by Raquel Royers

customer lifetime valueMarketing your business can be confusing, especially with all of the jargony lingo that gets tossed around in conversations. Customer lifetime value. Have you heard that one? Does it ring a bell? 

If so, good! That’s a start. But do you actually know what it means? Don’t worry, most people don’t—even some people that are IN the marketing industry. Unfortunately it’s often something that is overlooked. It’s a very important part of understanding your marketing strategies and overall having a successful small business.

Customer lifetime value is the total worth of a customer to a business over the entirety of their relationship.

Here’s an example: 

The customer lifetime value (CLV) of my relationship with Starbucks started when I was about 16 and will continue most likely my entire life. Yep, I’m that much of a coffee freak. Anyways, you can probably relate—that means that Starbucks can account my lifetime value to some sort of dollar amount—most likely a number I don’t want to think about. 

Does that make sense? Try relating it to something in your life; it helps to understand it on a smaller scale but also to see the other side of it.

Why is it important for you and your business? 

Having insight into data like CLV will help you have a successful small business because you'll know where you can allocate your funds and how much effort and money you can put into marketing. Even more specific, CLV will allow you to know how much money you can put forth when marketing to each individual lead. This will help you to save money, make more money, not exert extra attention or efforts, and ultimately have a smarter more successful business. 

What is customer lifetime value (CLV) and why do you need to measure it?

Posted by Econsultancy

How do you measure CLV?

The old adage that it costs less to retain existing customers than it does to acquire new ones is certainly still true for most marketers.

According to Marketing Metrics, the probability of selling to a new prospective customer is 5%-20% whereas the probability of selling to an existing customer is 60%–70%

Yet marketers are still more focused on acquisition than retention. According to our own Cross Channel Marketing Report, only 15% of companies surveyed are ‘more focused on retention’. 

Customer Lifetime Value

Image Source: Econsultancy

Also, just 42% of companies are able to even measure customer lifetime value. There are many reasons given by our respondents as to why measurement is a challenge: the heavily segregated nature of teams within their organization, poor systems, lack of coherent marketing and lack of integration. 

Measuring CLV can be boiled down to a simple formula: customer revenue minus the cost to acquire and serve the customer. Again this is a simplified view, and there are many other variables that can come into play based on your sector.

The key thing to remember is that customer segments should be identified by value and targeted in the most effective, cost-efficient way. Measuring the customer’s actual CLV can then be used to forecast predicted CLV.

[Continue Reading Original Article: What is customer lifetime value (CLV) and why do you need to measure it?]

Do you want to learn how to utilize marketing strategies and give your business the boost it needs to be successful? Here at Half a Bubble Out, we help owners and marketers like you! We’ll help break down all that confusing marketing lingo and get down to the basics of what will make you have a successful small business. Contact us today or download the free offer below to learn more.

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