What Is Customer Lifetime Value (CLV)?

Customer lifetime value (CLV) is an estimate of the total revenue a company can expect from a single customer account. It compares a customer’s revenue value with the predicted customer lifetimes.

CLV is an essential metric that helps you decide how much to invest in customer acquisition and retention. It helps identify the customer segment that is the most valuable to the company.

Why Is Customer Lifetime Value Important?

Calculating CLV for different customers helps companies in decision-making about various things, such as the customer retention strategy.

Knowing your CLV helps you determine things like:

• The type of products customers with the highest CLV want
• Which product has the highest profitability
• Which segment of your audience is the most profitable
• The ideal amount to spend on customer acquisition while maximizing profits

How to Calculate Customer Lifetime Value

There are various ways to calculate customer lifetime value. The most common formula is:

CLV = Average Purchase Value x The Purchase Frequency x Customer Lifespan

Average purchase value is the total annual revenue divided by the number of purchases in the same period.

The purchase frequency is calculated by dividing the number of purchases by the number of unique customers for the same span.

Customer lifespan refers to the average number of years a customer continues purchasing from your company.

How to Improve CLV with EngageBay

Some of the best practices to improve CLV include:

Improve the Buying Experience

For a long-lasting relationship, it’s crucial to provide an excellent buying experience to your consumers. If your customers struggle to find an item of their choice during the purchase, they probably won’t stay long with you.

Start by revising your website — make sure that your website is easy to navigate and is mobile-friendly. Add website forms to collect information about your visitors and segment them to provide a personalized experience.

With the EngageBay web form tool, you can pick from any pre-configured form styles and customize them or create a custom one.

Revamp Your Customer Service

50% of customers switch companies due to poor service. In today’s time, customers want immediate responses and expect your service to be available through various channels.

Besides, the popularity of chatbots is growing manifold, given how they can instantly handle requests from customers.

EngageBay’s live chat software delivers personalized one-to-one support to every customer, offering superior customer service.