Customer lifetime value is the amount of revenue, products and services that one customer is spending at the business over the period the business exists. Customer lifetime value metric is clearly dependent on how long a customer will use your service and how much they’d be paying you.
Be it a consumer product or a service-based product, the essence of CLTV is similar to each of them.
And for a healthy business, this is one of the metrics you should be tracking. So, let’s see how we calculate this.
Customer Live Time Value (CLTV)
Let’s get straight to the point. There are two ways to grow your business – first, by acquiring new customers, and second, by retaining existing clients and increasing customer lifetime value (CLTV).
While there’s nothing wrong with working hard to grow your customer base, it’s important to remember the value behind customer retention. The longer you can keep a customer, the greater is the provided value during their lifetime relationship with your brand.
So this is why, in this post, we’ll share everything you need to know about Customer Lifetime Value, starting from learning how to calculate it, to which tips to follow to boost your CLTV.
How Do You Calculate Customer Lifetime Value?
Well, there are different ways as to how SaaS companies measure this metric. One of the easiest ways is simply calculating the average customer value (considering all your customers) & in-turn their lifespan.
CLTV = Average customer value / Average customer lifespan
You can also calculate this for a single customer and then average it out for all customers.
The formula for calculating the CLTV is:
CLTV = ARPU * Gross Margin * Lifetime
Here, ARPU = Average Revenue Per User & Gross Margin % = (Revenue – Cost)/Revenue
One of the most crucial ways to grow any business is to focus on retaining existing customers and increasing their lifetime value (CLTV).
And like I mentioned before, both of these methods indicate that customer lifetime value clearly depends on the lifespan of the customer. So, let’s dig into the unique & simple tips provided by our experts on how to increase your customer lifetime value.
How to Increase Your Customer Lifetime Value?
Let’s look at ways companies across the different horizons (SaaS/B2B, B2C) delight their customers, make them stick to their business, and ultimately increase their CLTV.
Here are the 18 most effective ways to increase your customer lifetime value:
1) Check-in with your customers regularly.
2) Dedicated account manager to serve your customers.
3) Strong Presale Interaction with Customers.
4) Educate your customers about your product in-depth.