Your Guide to Lifetime Value, Part Two: How to Use Customer Lifetime Value

Roberto Mejia
by Roberto Mejia on December 24, 2012 in Business
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By now you know that a customer's lifetime value is one of those critical metrics that can help your business determine the ROI for the cost of acquiring and retaining each customer. It gives you information about whether he or she is likely to be a repeat customer, which, in turn, tells you how much you should spend on him or her. In other words, it's important enough that it should be a part of your existing financial analysis.

The idea behind improving your customers' lifetime value (and thus reducing your cost per customer), is to retain each one for as long as possible. A common mistake that many businesses make is to focus too heavily on obtaining new customers. This step is critical, of course, but while your sales team is busy bringing new high-value leads into the funnel, don’t neglect your efforts to keep them there. 

Here are a few ways to utilize your customers' lifetime value and boost your customer retention rates:

  • Prospecting. Some customers are worth far more than others. Once you determine which type of customer tends to have the highest lifetime value, you can focus more of your marketing efforts on reaching these high-worth customers. Lifetime value can help you better evaluate leads and get more bang for your marketing buck.

  • Budgeting. By looking at the true lifetime value of each customer rather than just the value of a single sale, you can make better decisions about how much to spend on attracting new customers.

  • Retention. Lifetime value places an emphasis on retaining customers and increasing your sales to them. Keeping your existing clientele happy is usually much cheaper and more effective than constantly trying to win new customers.

  • Evaluation. Lifetime value helps you better measure the success of a marketing campaign and evaluate the effectiveness of your business operations a whole.

Knowing your customer lifetime value lets you develop the right marketing techniques to make each customer more valuable to you—without requiring you to commit a big chunk of your budget or take company resources away from new customer acquisition.

It's important to calculate lifetime value regularly to make sure you’re on track with your marketing strategies. Once you have the information you need to make budgeting and strategic decisions, your bottom line will start looking a whole lot better.

Roberto Mejia

Roberto Mejia

While specializing in web development and inbound marketing, Roberto Mejia prides himself in always learning and improving as much as possible.