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CLV

What Is CLV?

CLV (Customer Lifetime Value) is the total sum of money a buyer is expected to spend on your business services or products within a lifespan of an average relationship with your business.

How To Calculate CLV?

Here’s a CLV formula: Customer Lifetime Value = Customer Value * Avg Customer Lifetime

where

Customer Value = Avg Sale Value * Avg Transactions Number.

For example, a regular Flowers store client has been buying a bouquet worth 30$ once per month for 10 years. In this case, Customer Lifetime Value = 30 $ * 12 * 10 = 3600 $.

What Is A Good Customer Lifetime Value?

In general, a good CLV should cover your buyer acquisition cost. It’s a good scale if your client’s lifetime value is 3-5 times bigger than your buyer acquisition cost. For example, if you spend 200$ on getting a new buyer, your goal should be to reach a CLV of at least 600$.

How To Increase Customer Lifetime Value?

The key to boosting your CLV is selling more to your existing customers, as it’s easier to sell to existing buyers than invest in getting new ones. Here are some tactics to raise the likelihood of purchasing from you that will increase your CLV:

  • Work on your product returns strategy.
  • Work on your loyalty program.
  • Improve your client service.
  • Run exclusive deals and campaigns.
  • Constantly improve the quality of your products and services.
  • Stay in touch with your clients and learn about them better.

Difference Between CLV And LTV

These terms share the same meaning, with the main difference being that lifetime value (LTV) focuses more on the cumulative value of all clients having a relationship with your business, meanwhile CLV deals with an individual client.

CLV FAQ

Why is Customer Lifetime Value important?

This figure is significant for client retention, as you can better calculate how much you should invest in retaining your clients, plan how to lower your acquisition costs, and get a closer look at your eCommerce business health and review your retention and acquisition strategies.

What are the three components of CLV?

CLV components include:

  • Buyer acquisition cost.
  • The annual profit of a client.
  • The average lifetime of a buyer.

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