Growing Customer Lifetime Value

What is CLV?

Customer Lifetime Value (CLV) is defined as the total dollars flowing from a customer over the entire relationship with that customer. 

How It's Calculated

Historic CLV is simply the sum of the gross profit from all historic purchases for an individual customer. When calculating CLV, it’s best to look at purchase data from the past 1-3 years at minimum. For WhatCounts clients, a minimum of three years of customer purchase data is used to calculate this number.

Predictive CLV, however, is calculated by analyzing previous transaction history and various behavioural indicators which forecasts the lifetime value of an individual. This value will become more accurate with every purchase and interaction.

Here's an example:

Trendy Tina purchases clothing from your site every couple of months, sometimes returning for a special promotion or when she has a coupon. If we look at her purhcases from the past three years (listed on the right), you can see that her total CLV is $330.

Why It Matters

Evalutaing you CLV can help you identify key trends and behaviors to enable smarter marketing campaigns and messages. Here are some examples of how this could work:

Target and Nurture Your Customers More Effectively

Let’s say you have a customer with an historic CLV over the past 12 months of $1,000, however, 6 months later they have only spent $200. This customer is falling way behind pace of what they typically spend, indicating they aren’t purchasing from you nearly as often as they once did. In this instance, you could deploy a win-back campaign to ensure this customer continues to spend at the same (or higher) level as they had previously.

Catch A Churning Customer

When you understand which customers are driving the most revenue and which ones tend to make smaller purchases, you can more effectively tailor your messages and offers to those specific audiences.

Understand What Drives High CLV

Once you identify which customers are have the highest CLV, you can assess what behaviors, messages, promotions, etc. drive more purchases. You can also run several A/B test among this group to see what drives the best results

Reward Loyalty

Show customers with high CLV that you appreciate your business and keep them coming back.

Where Does the Industry Stand?

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With industry leaders like Amazon, Zappos and Bonobos outperforming so many eCommerce businesses, it’s important to understand why. Simply put, these eCommerce giants have a maniacal focus on retaining their customers, with retention rates of 60-80%. In doing so, they have been able to grow customer lifetime value substantially. Compare this to the startling statistic, uncovered in the 2016 Retention Marketing Survey conducted by Internet Retailer:

55% of retailers report a retention rate of less than 20%

This means that the vast majority of retailers are losing 4 out of every 5 new shoppers to their competitors – basically, spending their hard fought acquisition dollars yet never seeing a profit from 80% of shoppers.