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CLTV (Customer lifetime value)

Boosting your business's revenue may sound simple, until you realize you need to retain customers to get there. Sure, attracting new buyers to your store is exciting, but what's even better is when your existing customers keep returning for more. Imagine retaining a large percentage of your customers to generate even more revenue for your business. That's where the eCommerce glossary comes in. This article will help you unlock the meaning of CLTV (customer lifetime value) so you can learn how to improve this metric for your online store.

Instant's Shopify product page builder can help you achieve your goals by giving you the tools to create beautifully optimized product pages that boost your SEO and improve your customers shopping experience.

Table of Contents

What is the meaning of CLTV?

Customer lifetime value (CLTV) measures how much revenue a customer can earn throughout their relationship with your business. The average CLTV quantifies this metric across all customers. Loyal customers who repeatedly purchase your products over time can increase your average CLTV, helping you understand how much you can spend to retain and attract new customers. CLTV is also known as customer lifetime:

  • Value

  • LTV

  • CLV 

How to calculate CLTV  

Calculating customer lifetime value can initially seem complex, but it’s relatively straightforward once you break it down. You can use historical data from your existing customers to help you calculate a more accurate CLTV. The formula for CLTV is:  

  • Average customer lifespan: How long a customer purchases from your business. For example, if you run a subscription service and a customer stays subscribed for 36 months, your average customer lifespan is 36 months. 

  • Average purchase value: The average money a customer spends on each transaction. You can calculate this by dividing your total revenue over a given period by the number of orders during that same period. 

  • Average purchase frequency: How often a customer purchases from your business within a given timeframe. 

The formula for calculating this value is: 

Customer Lifetime Value: CLTV (Average Purchase Value x Average Purchase Frequency) x Average Customer Lifespan.  

Why CLTV matters  

Gaining insights into CLTV is essential because it informs decision-making processes related to marketing, sales, and overall business strategy. 

This understanding provides insight into: 

  • The average customer's lifetime value

  • Essential for maximizing each customer relationship

  • Offers an outlook on the business's long-term financial sustainability 

Established companies can derive significant value from incorporating historical customer data into CLTV calculations, leading to a more accurate assessment of long-term customer value. Loyal customers can also drive up CLTV through word-of-mouth marketing, an invaluable asset in today's social media-driven world.

Why is customer lifetime value important to your business?

Customer lifetime value is a critical revenue metric for eCommerce businesses. It calculates how valuable a customer is to your business over an extended period instead of just their initial purchase. CLV helps companies to predict future revenue, allowing them to make better decisions about acquiring and retaining customers.

How to increase CLTV?

Increasing customer lifetime value (CLV) requires a strategic approach focused on building long-term relationships, enhancing customer experience, and encouraging repeat business. One of the most effective ways to achieve this is by implementing a referral program, which rewards existing customers for bringing in new ones and increases retention. Since referred customers tend to have a higher CLV and lower churn rates, this strategy boosts loyalty while expanding the customer base. 

Personalize CLTV-boosting marketing campaigns 

CLV also increases when brands focus on improving their marketing efforts to boost customer retention. Personalized marketing campaigns ensure that customers receive relevant and engaging content, making them more likely to continue their relationship with a brand. By leveraging data-driven insights, businesses can tailor emails, recommendations, and promotions to match individual preferences, enhancing customer engagement and satisfaction. 

Improve customer service and support 

Beyond marketing efforts, actively listening to customers and optimizing service quality are crucial in improving CLV. Encouraging customer feedback through surveys and reviews provides valuable insights into pain points and opportunities for improvement. Engaging customers through informative content, whether through:

  • Blogs

  • Videos

  • Email newsletters

Helps strengthen their connection to the brand. 

Maximize revenue through upselling and cross-selling 

Businesses can maximize revenue through upselling and cross-selling strategies by offering complementary products or premium upgrades. Recognizing and rewarding loyal customers with exclusive perks, such as free shipping or early access to new products, reinforces their commitment and encourages repeat purchases. 

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