What is customer lifetime value?
In the simplest of terms, customer lifetime value (CLV) is the average amount of money your customers will spend with your business over the entire duration of your relationship with them. For instance, if a customer tends to spend $20 per visit to business, and they visit twice a month for two years, that would yield a customer lifetime value of $960 for your business.
So how then does CLV relate to your business in terms of marketing costs and impact on profitability?
Imagine that you sell pizza. You spend $10 in advertising to attract a new customer. He or she buys an average of two pizzas every month for 24 months. Your profit margin on each pizza is $7, which works out to $336 over the two years. You then subtract the amount of money you spent to acquire the customer, which results in a net customer lifetime profit of $326.
This is a very rudimentary example, of course, but it demonstrates the importance of considering lifetime revenues from your customers in your marketing strategy while allocating your marketing budget to grow your business.
Why is customer lifetime value important?
Your customers aren’t just worth the amount of money they spend on your business today; they have potential future value, as well. Furthermore, once someone has visited your store once, it is much easier for you to entice them to make repeat visits.
In the example described above, we took advertising into account. It cost $10 to get one customer through the door for the first time. That same customer wound up generating $326 in net customer lifetime value over the entire lifespan of your relationship with them.
What if Adentro helped you attract and retain a thousand such customers for your business? For a total marketing spend of $10,000, you’d have generated net customer lifetime revenues of $326,000 over the entire lifetime of your relationship with them.
Customer lifetime value is important because the higher the number, the greater the profits. In a prospecting campaign, bringing in new customers means more revenue and profitability over time, whereas with an offline retargeting campaign, you are increasing the CLV of existing customers by driving up visit frequency, which also increases revenue and profitability over time
How is maximizing CLV made easy with Adentro?
Traditionally, brick-and-mortar businesses would have to have some sort of digital loyalty program to be able to calculate CLV on in-store visits: something that allows the business to tie a unique customer ID to each transaction. However, because Adentro automatizes the data gathering process and gives you the ability to understand visit frequency on a per customer basis, you are more readily able to calculate CLV and use it to inform your marketing plans.
Furthermore, with our platform’s POS data integration capabilities, you can use actual conversion data to link precise customer spend directly to a campaign—or even down to a single ad. This permits merchants to measure the full impact of digital campaigns by tying in-store Walk-Throughs and purchases directly to ad exposure, and even understanding the difference in average order value between your customers exposed to marketing vs those that were not exposed.