Business owners have to consider the value of a single customer. We’re not talking about their value on a personal level (although those personal connections are important). We’re talking about the value on a transaction level.
However, there’s more to customer value than one transaction. Ideally, you want that customer to come back for repeat business. The value of the customer increases over time, leading to the marketing concept of ‘customer lifetime value’.
Let’s dive deeper into the importance of customer lifetime value and how you can increase it.
What is customer lifetime value?
To begin, we’ll ask, how much does the average person spend at one time? Let’s say you own a salon, and the average customer spends $50. At the transaction level, that customer’s value is $50.
If your service is good, that customer will return over the course of months (or even years), at which point we calculate the customer lifetime value. We’ll go back to the salon.
You have a customer that spends $50 at one visit and comes back four times a year on average. Based on your customer records, this customer made regular appointments for 3 years until they moved. Now it’s time for some math:
$50/appointment x 4 appointments/year = $200/year
$200/year x 3 years = $600 customer lifetime value (CLV)
So, your customer isn’t valued at $50; they are valued at $600. That means if you lose a customer, you’re not losing a single sale. Instead, you’re potentially losing $600 of sales. Calculating CLV can get a lot more complicated, but that’s the basic principle.
How to increase customer lifetime value
There are two main areas where you can focus in order to increase CLV: 1) upselling (short term); 2) improving the customer experience (long term).
We could spend all day just talking about upselling, but that also happens at the transaction level, so we aren’t going to focus on that part today. We’ll instead look at the customer experience.
Understand the customer journey
The customer journey is sometimes called the ‘sales cycle’ and is essentially the path the customer takes from initial lead to sale to referral. Understanding the customer experience will help you identify places where you can improve and lead to customer loyalty.
Create a diverse marketing strategy
No part of the lead cycle should go untouched. That means nurturing leads, providing excellent and fast customer service to existing customers, and staying in touch with customers about promotions.
But seriously, who has time for that? We do!
The Frontline Strategy
Our all-in-one marketing tactic, also known as the Frontline Strategy, is a process by which our team takes over your marketing and customer service for you. We nurture leads, develop your social media and blog campaign, and even tackle customer service calls.
Through SMS, phone, and digital campaigning, we can manage and improve the customer experience, which will improve customer loyalty and ultimately increase your customer lifetime value. Contact us today to get started.