FACT: New customers do not contribute to the profitability of the businesses in the first two years after acquisition.
The acquisition of new customers can cost five times more than satisfying, retaining and potentially cross-selling and upselling to current customers. It is therefore vital that, as a business, the Customer Lifetime Value if understood and optimised.
According to Bain & Company, margins are boosted when companies simply retain current customers, estimating just a 5% increase in customer retention can have a 75% increase in a company’s profitability.
Here are 4 simple steps to help calculate the Customer Lifetime Value within your business
- Get Data ready & start segmenting. It is vitally important that you have accurate data to draw accurate information on clients profiles and their purchasing patterns.
- Calculate the average customer sale segment. Customer sale segment may be defined by, for example, customer type / Demographic / Product type, etc.
- Review how often your customer purchases from you (Average Number of Repeat purchases by customer type)
- What is the average retention time (months / years) of a customer? This means how often does your customer purchase from you in a specified time period.
To calculate the Customer Lifetime Value, simply multiple Average Customer Sale x Average Number of Repeat transactions x average time of a customer = Estimated Customer Lifetime Value £
This will help you focus your business on driving customer retention which, will result in increased business profitability.
ProAptivity deliver CRM and Marketing Automation solutions. These solutions help businesses attract and keep customers, improving Customer Lifetime Value. For more information, contact us today on 028 9099 6388 or via email at firstname.lastname@example.org