What is actually customer lifetime value?

Sure, you like every customer equally! But let’s be honest! Some of them are economically more valuable than others. Especially if they generate good sales at short intervals. The monetary value of a customer is represented in the so-called customer lifetime value.

Customer lifetime value (CLV) is a key figure that helps you to optimize measures. For example, it tells you the maximum cost of acquisition.

In addition, the customer lifetime value is an important point of reference when designing retention marketing. This is a marketing discipline that is currently gaining massive importance again.

What exactly is customer lifetime value?

Every day we analyze the buying behavior of our customers to divide them into groups (customer segmentation). Each customer shows different preferences, likes, and desires and deserves special treatment.

Customer lifetime value distances itself from the rough consideration of customer segments and focuses on the yield of customer relationships. For this purpose, an average is calculated from empirical values, which expresses how much a customer will bring to the company in the course of his entire customer life. The total value of the customer is considered over the entire lifetime of the business relationship.

Customer Lifetime Value: The Phases

Customer Lifetime Value has the same phases as Product Lifetime Value

Introduction: The first contact

It is the process of conversion. It all starts with the “cold” contact coming to you for the first time. The prospect starts to get to know you or your product and then possibly places his first order.

Growth: Building trust

Your customers now know you and trust you as a partner. They come back to search for information or place more orders.

Maturity: Finally grow up

The customer relationship is getting closer and loyal customers are placing orders all the time. It’s the ideal moment. However, it is important to continue to care about the relationship, otherwise, the customer will quickly lapse into the final phase and be gone.

The withdrawal: it is not too late

The customer starts to buy less frequently, asks for discounts, and in the end withdraws from the purchase altogether.

Of course, this cycle is not set in stone. Optimally, the maturity phase lasts as long as possible as with Coca-Cola, for example.