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How Customer Lifetime Value Can Increase Your Company’s Profits

Customer Lifetime Value


How Customer Lifetime Value Can Increase Your Company’s Profits

If you use an iPhone or know someone who uses an iPhone, chances are they (or you) will keep only using an iPhone and upgrade it when the latest model comes out.

A study shows 90% of consumers who buy iPhones will buy the new upgraded model when it’s out.

This statistic can be accurate because Apple makes excellent phones. But it can also be because Apple is good at retaining customers. Apple offers superior customer support in its support centres’ Genius Bars,’ which makes sure that customers keep coming back. It is estimated that iPhone customers are worth $8000, on average, which makes it a high customer lifetime value.

What is Customer Lifetime Value
It’s always more valuable and more cost-effective for a company to retain a customer than to make a new one. The Customer Lifetime Value quotient is the estimated amount of profit that can be attributed to each customer.
According to management guru Peter Drucker, “The purpose of a business is to create and keep a customer.”
This is pretty much the definition of customer lifetime value in a sentence.

Why Customer Lifetime Value Important
Remember that adage, ‘Customer is the King.’ This quote drives the point home when you’re talking about customer lifetime value. You’ll save loads of your budget in retaining your customers and treating them like royalty. Businesses have to spend a significant amount of cash for customer acquisition rather than customer retention.
Customer lifetime value is important because it measures the total revenue a business can expect from a single customer account and compare that number to the company’s predicted lifespan. Businesses can use this metric to identify customer segments that are the most profitable.

With customer lifetime value, a business can evaluate the following:

– How to incorporate customer’s feedback into product development.

– Marketing budget to know if you should be spending more on acquiring new customers as opposed to retaining loyal ones.

– Increasing customer support to retain customers.

How to Calculate Customer Lifetime Value

Here’s a simple math equation

Customer Lifetime Value (LTV) = Lifetime Customer Revenue – Lifetime Customer Costs

Spending any more money on acquiring a new customer as compared to the customer lifetime value (LTV) will result in a loss for your company.

How to Improve Customer Lifetime Value

-Customer lifetime value can play an integral role in increasing the profits of the company. One of the best ways to do is to invest in good customer service programs. A Hubspot study showed that 55% of companies that were growing exponentially thought it was critical to invest in customer service programs, as compared to only 29% of companies who had a dwindling revenue that believed in investing in customer service. Xbox follows this strategy really well, and it uses social media to connect and respond to its customers’ queries. In fact, with more than 1 million tweets, it holds the Guinness World Record for being the most responsive brand ever.

-Customer retention is the key to maintaining a good profit margin. A Bain & Company study found that a 5% increase in retention rate saw a profit increase of 25% onwards. Customer retention has worked for companies like Starbucks to increase their profit margin. Starbucks’ loyalty program is very efficient in retaining customers. The loyalty program has a simple structure — the more coffee you drink, the better deals you get. According to a study, it has a customer retention rate of 75%, and the average profit per person is 21.3%. The average customer lifetime value is around $14,000.

-Improving the customer experience quotient can also help elevate your LTV score. Customer experience is the impression created by your brand. It can be a personal experience or based on other factors. Customer experience can help determine whether your customer wants to come back to your brand.

How Customer Experience Management (CEM) can help to improve LTV
If you want to increase your customer lifetime value quotient, you can carefully plan your reactions to customer interactions so that they exceed expectations and increase customer satisfaction and loyalty. This is known as customer experience management.
Once a business has aced the art of customer experience management, it can make sure customers are loyal, and also turn customers into spokespersons for the business.
CEM, in short, can help the brand become loved by all.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the publication

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