How To Determine A Client’s Lifetime Customer Value (& Why You Should)

There are so many metrics to track in your business, but one important thing you should pay attention to is lifetime customer value. Business metrics focus on a variety of things, from growing your audience to understanding conversion issues on your website. Customer value is one of the most important metrics for any online business.

Even more importantly, it’s a metric that tends to be underrated. Many business owners don’t pay much attention to this metric, particularly if they’re unfamiliar with why it’s important or how to calculate it.

But tracking lifetime customer value allows you to gain a deep understanding of how your marketing campaigns shape customer loyalty and increase your revenue. When you define and track this metric in your business, you’re able to strategically implement only the most effective marketing campaigns and generate more revenue quickly.

By now, you probably already know that acquiring new customers is much more challenging than re-engaging existing customers. To know where to focus your efforts, you need to understand customer value and shift your marketing strategy accordingly.

What Is Lifetime Customer Value?

To get started, let’s set a clear definition for customer value (or lifetime customer value).

This metric focuses on how much money one customer spends with your brand throughout their “lifetime” as a customer.

Basically, lifetime customer value lets you know how much any customer is worth for your business. Once you know this, you can strategically focus on customer retention campaigns to generate more revenue from your best customers (and nurture those with potential).

Even better, you’ll be able to predict whether specific customers will end up becoming high-value, repeat customers. This way, you can map out who is primed to continue as a raving fan and who you should put a little extra effort into nurturing.

How Do You Calculate Lifetime Customer Value?

This metric isn’t as hard to calculate as you might think. You don’t need any complicated software or tools—just a few essential pieces of data and a calculator.

The simplest way to calculate your lifetime customer value is to follow these steps: 

  • Find your average order value
  • Multiply by your customer’s average purchase frequency
  • Divide that total by your average customer lifespan

From here, you can evaluate how things are currently and figure out where you need to improve. One of the main things to keep in mind is that your lifetime customer value should stay higher than your customer acquisition cost.

But don’t focus too much on acquisition costs—instead, think about nurturing your customers beyond that initial acquisition to increase your customers’ overall value over time!

Why Is Customer Value An Important Metric?

With lifetime customer value, you’ll know exactly where you should allocate more resources, time, and money. Nurturing the right customers helps you increase your revenue with lower acquisition costs.

Here are three specific reasons you should track this metric in your business.

You’ll Be Able To Focus On Retention And Increase Revenue

Customer value isn’t about figuring out how to spend more money acquiring new customers. Instead, you’ll use this metric to focus on retaining your current high-value (and potentially high-value) customers!

Retaining your best returning customers is one of the most powerful ways to increase your revenue with fewer costs. Even better, you’ll build a community of loyal customers who love your brand and engage with you on an omni-channel level.

You’ll Know How To Incentivize Your Best Customers

Aside from increasing your revenue, customer value helps you effectively market to your best customers in the right way.

With lifetime customer value, you know who to focus on and how to incentivize them based on past buying patterns. Your marketing strategy for retention will be clearer than ever before.

You’ll Have A Clear Path To More Customer Loyalty and Higher Profitability

Have you ever heard of a statistic called the Pareto Principle? This idea states that 80% of your revenue comes from only 20% of your customers. That means you need to focus on your most loyal customers in order to increase lifetime customer value.

By tracking your lifetime customer value, you can segment your customers into specific groups and target them with unique campaigns focused on loyalty and increased revenue. And those goals help boost your profitability along the way!

What To Do Once You Calculate Lifetime Customer Value

Once you actually calculate this information, what should you do with it?

Tracking your metrics is important, but using that data to drive action in your business is where the magic really happens!

Run Campaigns Focused On Driving Repeat Purchases

Your first action area is to create campaigns focused on driving repeat purchases. The more times you can get a customer to make a purchase, the more loyal they become, and the higher their lifetime customer value will grow.

Send out thank you messages when someone makes a purchase or signs up for something. If someone abandons their cart, send out an email reminding them and drawing them back in.

Related: How Traffic Data Can (and Should) Drive Your Marketing Strategy

Create A Strong Loyalty Program

Next, you’ll want to consider building a loyalty program with rewards for your best customers. When you offer rewards, you’ll actually encourage customers to buy more and become higher-value.

People love feeling like they’re being rewarded, so get creative here! Incentivize more frequent (and higher-dollar) purchases. Take things to the next level by targeting specific groups of customers based on levels of customer value!

Use Your New Data To Highly Target Your Content

Your customer value data can be used to make your marketing and messaging way more strategic.

Build out specific segments of customers with different customer values. Then, communicate with them in a way that reflects how they interact with your business (and how you’d like that to change).

The more targeted your messaging and content is, the more likely you’ll experience conversions down the road.

Focus On Driving Multi-Channel Engagement

Multi-channel engagement is so important in increasing customer value. But you can actually use your metrics to help push your best customers to engage on other channels!

Pay attention to the places where your highest-value customers are engaging with you, and where things are lacking. Use that information to strategically fine-tune your marketing campaigns to reach customers where they are (and drive them to where you’d like them to be).

Focusing on lifetime customer value is an incredibly important metric in your business. This data is simple to figure out, but packs a huge punch for shaping your marketing strategy and messaging!

Generating high-quality leads is one way to increase your chances of having really high lifetime customer values. Snag our Traffic Insights Dashboard now to do just that!