Understanding the Importance of Customer Lifetime Value
One of the most important metrics used to determine the long-term success of businesses today is ‘Customer Lifetime Value.’ Businesses generally gauge their success ratio by looking into factors such as sales, profit margins, and then compare them with their annual growth projections or with that of their competitors. Among these factors, Customer Lifetime Value or (CLV) is the most important metric as it represents the total amount of money that a customer is likely to spend over his/her lifetime.
However, the big question left answered yet is – How do you calculate customer lifetime value? Though there is a myriad of ways using which one can calculate customer lifetime value the simplest ones involve three components – the purchase frequency, the customer lifetime length, and the average order value.
- Average order value: Represents the money spent by a customer while placing an order. The easiest way to determine this figure is, to sum-up the revenues and then determine the average over a given period.
- Purchase frequency: Represents the number of times a customer makes a purchase with the company. Dividing the total number of orders by the total number of customers helps determine purchase frequency.
- Customer lifetime length: Represents the period during which a customer makes purchases from your company. This value can be difficult to determine unless a company possesses several years’ worth of sales data.
Client Profile[spacer height=”10px”]
The client- one of the leading digital advertising agencies situated in the UK. The client is well-known for working with some of the world’s leading brands in the UK, helping them redefine the potential of digital engagements.
Project Background and Solution Offered[spacer height=”10px”]
The efficiency of digital advertising channels has become a key differentiator across industries. While a few digital advertising service providers are focused on analyzing digital advertising trends to develop innovative digital engagement channels, a few are still battling out several challenges related to customer loyalty and customer retention. One such digital advertising agency was on the lookout for an effective model to balance out its business plan and counterpoise the unavoidable cost factors that form an inexorable part of a business. The client realized the importance of customer lifetime value in doing so and decided to invest a fair share in it to gain a better handle on customer retention strategies.
Several factors such as these prompted them to seek Quantzig’s help to develop a precise customer lifetime value model to understand the importance of customer lifetime value. Our customer analytics experts helped the digital advertising agency to boost customer satisfaction, leading to a sharp increase in customer lifetime value.
Value Delivered to the Client[spacer height=”10px”]
Quantzig’s customer analytics experts worked parallelly with the digital advertising firm to gain detailed insights into their customers and their purchasing patterns. The customer lifetime value model helped them increase customer retention rates by 5% which, in turn, increased their profit by 60%.
As a result, the digital advertising company was able to analyze the digital advertising trends and sketch out a well-aligned business plan to deliver sustained business growth.
Want to develop a customer lifetime value model that suits your business plan? Get in touch with our experts today!