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Working with Customer Lifetime Value

When it comes to customer retention, it's important to know how valuable each of your customers is to you in order to know how much you should spend on marketing towards them. It's equally important in customer acquisition, to see who your current valuable customers are, in order to find new, lookalike ones. For these reasons and more, it's important to know your Customer Lifetime Values (CLV, or sometimes known as CLTV.)

workingwithcustomers_blogpost_ressources_voyado

How does customer lifetime value work?

Customer lifetime value – CLV, is a predictive metric that indicates how much revenue your business can expect from a single customer during the time that is left in your relationship. This is an important element in CRM marketing often used to identify segments that are the most or least valuable to you.

How do you calculate the customer lifetime value?

Voyado calculates the customer lifetime value by estimating how much time a customer has left as an active member. The estimated income in revenue during this time is multiplied by a fixed margin and capital cost (for future years as an active customer). This is done in order to give you an estimate of the potential profit left within the remaining member lifetime.

This is a valuable metric used to measure the estimated future financial value of each customer and can be included in the loyalty program strategy. For example when building automation and creating segments.

Use the CLV to prioritize your activities

Now, the CLV is set to predict future potential but does not tell you how the customer has been spending and visiting your business in the past. You should still, of course, show your historically loyal customer your appreciation. But it is important to know that he/she may not be the one you should work on the hardest or spend the most on. There might be other customers with a better life-time prognosis that is more valuable and profitable for you to encourage going forward.

Create a strategic framework

Your customer’s CLV can easily be included as criteria when you create segments in Voyado. The easiest way to start is by creating a strategic framework that aligns with your overall strategy. Example:

CLV Priority Segment
€ 1000+ High Gold
€ 500-1000 Medium Silver
€ 0-500 Low Bronze

This model can then be used to build triggered customer journeys. Here is an easy example of such automation:

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