Customer Lifetime Value (CLV) is a prediction of the net profit attributed to the future relationship with a customer.
Peter Drucker said: “The purpose of a business is to create and keep a customer.” Which pretty much sums up the value of Customer Lifetime Value (CLV) .
CLV helps make important business decisions about sales, marketing, product development, and customer support. For example:
- Marketing: How much should I spend to acquire a customer?
- Product: How can I offer products and services tailored for my best customers?
- Customer Support: How much should I spend to service and retain a customer?
- Sales: What types of customers should sales reps spend the most time on trying to acquire?
To calculate Customer Lifetime Value, here is how to do it.
If you want examples of brands that are making the most of it, here are 9 inspiring case studies of Customer Lifetime Value (CLV).
- AMAZON: Consumer Intelligence Research Partners estimates that Amazon Kindle owners spend approximately $1,233 per year buying stuff from Amazon, compared to $790 per year for other customers. So Amazon pays close attention to Customer Lifetime Value (CLV). Amazon Prime has been developed to enable Amazon to efficiently compete on price and to increase customer lifetime value. According to a 2013 study by the Consumer Intelligence Research Partners, Amazon Prime members spend $1,340 annually. And that was 3 year ago. It’s more now. By applying Customer Lifestyle Value (CLV) to the development of Amazon Prime, Amazon knows how to get the most out of their most profitable customer segments.
- BONOBOS: Is a leading e-commerce driven men’s apparel brand focused on delivering great fit, a fun approach to style, and superb customer experience. Bonobos has always been a data-driven, customer-focused retailer. With Guideshops, Bonobos has service-oriented e-commerce stores that enable men to try on Bonobos clothing in person before ordering online. Bonobos discovers that Guideshops bring in customers with the highest lifetime value across all of its marketing channels. Insights into which channels are attracting Bonobos’ highest-value shoppers has helped Bonobos increase the predicted lifetime value of its new customers by 20%.
- CROCS: has always had a data-driven, customer-centric approach to marketing. When the marketing team is given a mandate to transform Crocs’ online business by becoming less reliant on promotions and discounts, the team is excited by the opportunity to improve Crocs’ profitability. The team tests to optimize promotions aimed at customers who are predicted to churn, and expands programs to coordinate a “no discount” experience across site, email and display for customers with the lowest price sensitivity. Crocs realizes 10X and 2X lift in revenue.
- HEAR AND PLAY MUSIC: A provider of music lesson products, uses automated lead nurturing and scoring to turn prospects into customers and repeat customers. Many of the company’s products cost less than $100. With automated messages that have a personalized tone to high value prospect, the company has seen: 1) 416% increase in Customer Lifetime Value, 2) 67% increase in click through rate from the best prospects (increased from 24.73% to 41.28% for subscribers with the highest lead scores) and 3) 18.4% improvement in lead-to-purchase time.
- KIMBERLY-CLARK: According to Nielsen, the typical family spends over $1,000 on diapers and baby wipes during the two-and-a-half years their children are in diapers. A Nielsen study was able to quantify the dollar value of key consumer segments, the critical nature of brand selection at various points in the consumer lifecycle and distinct differences in channel choices through key points in the baby care lifecycle. Kimberly-Clark has a clearer picture of its target market and where its greatest marketing and promotional opportunities exist to extend and expand their market share. “Nielsen’s lifetime.
- NETFLIX: An average Netflix subscriber stays on board for 25 months. According to Netflix, the lifetime value of a Netflix customer is $291.25. Netflix knows that customers are impatient and some customers cancel because they don’t like waiting for movies to arrive in the mail. Due to this they’ve added a feature where you can stream movies on the web, which not only satisfies your movie urge, but it keeps you busy while you are waiting. By tracking these stats and behavior, Netflix has reduced their churn to 4%.
- STARBUCKS: One of the most effective ways to boost Customer Lifetime Value (CLV) is to increase customer satisfaction. Bain & Co has found a 5% increase in customer satisfaction can increase by 25% to 95%. The same study shows it costs 6 to 7 times more to acquire a new customer than keep an existing one. Starbucks’ customer satisfaction has been reported as high as 89%. Due to high customer satisfaction, Starbucks’ Customer Lifetime Value has been calculated at $14,099.
- U.S. AUTO PARTS: Realizes the competitive advantage of loyalty and decided to invest. The company debuted the Auto Parts Warehouse loyalty program, known as APW Rewards. U.S. Auto Parts began to leverage capabilities such as increased rewards for high-margin products, personalized post-purchase enrollment offers, a status tier, and triggered email campaigns based off of a person’s repurchase history to maximize customer lifetime value. U.S. Auto parts increased its spend per member by 20%, its repurchase rate by 14%, and its enrollment rate by 45% after updating the loyalty program of its flagship brand,
- ZAPPOS: Has found people who regularly return items can be some of your best customers. It says that clients buying its most expensive shoes have a 50% return rate. Placing a priority on Customer Lifetime Value, Zappos has identified their best customers have the highest returns rates. They are also the ones that spend the most money and their most profitable customers. That’s why Zappos has a 365-day returns policy, free two-way shipping and doesn’t charge for returns.
Do the way these companies pay attention to Customer Lifetime Value inspire you with ideas for your company. Do you want to learn more about making the most of out of CLV.