Lifetime Customer Value 101

Lifetime Customer Value And RetentionHere's something you should never forget: Your customer is your greatest asset. That's right - it's not your employees, it's not your technology, it's not even your entrepreneurial genius (ok, maybe it's that too). The simple reality is your customers drive your business and the better customers you have, the better business you'll have today and tommorrow.

This brings us to two very important conclusions:

1. You need to do everything you can to nurture each customer.

2. You need to do everything you can to increase the value of each customer.

Both points are critical, but point #2 is impossible (or at least very, very difficult) if you're not working very hard on #1. The key idea in building Lifetime Customer Value (LCV) is to become extremely good at nurturing that relationship to build a lasting bond you can translate into present and future sales.

Just a quick note: Sometimes this concept is represented as "Customer Lifetime Value" or CLV. Take your pick. I like the sound of "Lifetime Customer Value" much better. 🙂

How To Calculate Lifetime Customer Value

Every customer you ever acquire has a Lifetime Value in your business. If you're selling widgets that cost $25 each and your customer Jane Doe purchases 3 widgets over the course of her relationship with your business, then she has an LCV of $75. Pretty simple.

But if you're running a yoga studio and Jane Smith signs up at $25 per month and keeps her account active for 15 months, now you're looking at an LCV of $375.

Simply put, Lifetime Customer Value is the total amount spent by each customer during his/her lifetime with you.

Why Lifetime Customer Value Is Important

Obviously, one of your primary goals is to increase revenue in your business. Since LCV is about money coming into your business, it's a no-brainer concept for you to understand and begin tracking.

Unfortunately, most business owners do not track this number because they're too busy obsession over acquiring new customers. Instead of thinking about the "lifetime value" of each customer, they're stressing over the "total sale" value of every new customer that comes through their doors.

When you start to understand what every single customer is worth to your business, it sharply changes your entire perspective on marketing altogether. If you're running that yoga studio and you now know that your average customer does remain active for at least 6 months, you have a number you can build your entire business and marketing strategy around.

And if you start tracking your LCV trends over time you can quickly identify holes in your sales process you need to improve to get better results.

Important LCV Questions To Ask Yourself

If your Lifetime Customer Value is an average of $1000, how much money can you afford to spend on marketing to acquire each new customer?
-This is also known as "Allowable Customer Acquisition Cost" and its a critical concept for every business.

How can you increase Lifetime Customer Value?
-Your options are adding new products and services, increasing transaction size, adding upsells/downsells, and adding additional steps in your sales funnels.

How can you do more customer nurturing to increase your allowable lead-to-sale time?
-This is the most important question of all since creating that lasting relationship with your customers is what really drives success with LCV. Better nurturing is really about doing better marketing.

These questions are all great places to start. What other questions do you have about Lifetime Customer Value?

Jason Clegg

Jason Clegg is the CEO & Founder of Convert With Content. He's on a MISSION to help small businesses convert tire-kickers into lifetime customers & raving fans with #ConvertWithContent marketing systems that work! His secret weapon is Infusionsoft.

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Sal Bhaiji - February 9, 2014 Reply

Good article Jason.

In a nutshell one should not focus just on top of the funnel.

Will you elaborate on how to nuture leads better?

    Jason Clegg - February 9, 2014 Reply

    Yes, Sal — the idea is to expand your sales funnel to maximize on the complete “customer lifecycle” rather than just focusing on one-time sales.

    Lead nurturing is definitely a very big topic. 🙂 But generally, you want to focus on *List Segmentation* and *Targeted Follow-Up* to get the best results. I’ll be sure to post about that soon.

    Thanks for your comment!

Kevin - March 18, 2014 Reply

Great article, sounds like customer obsession like my company is committed to. I think the lead question gets answered as you nurture and develop your present customer base, the will freely give up leads to from their group/circle of influence……..

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