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Why is Increasing Customer Lifetime Value Key to Growth?

Why is Increasing Customer Lifetime Value Key to Growth?

How do You Calculate What Customers Are Worth to Your Business?

Each and every customer plays a pivotal role in the expansion of eCommerce enterprises. However, in the realm of business strategy, it’s imperative to identify the customers who contribute the most value. The ability to precisely determine the highest-value clients is critical for driving the prosperity and advancement the brands we partner. This is where the calculation of customer lifetime value (CLV) assumes paramount significance. CLV allows brands to quantify the cumulative financial contribution an individual customer will make.

The Customer Lifetime Value Calculation

The CLV calculation is all about reading the data you have, in order to understand how your customers will behave. The basic data that you need to begin are:

  • Annual Purchase Value Average (PVA). Divide the total value of purchases over a year by the number of purchases made.
  • Annual Purchase Frequency Average (PFA). Divide the total number of purchases by the number of customers making those purchases.
  • Annual Customer Value Average. Multiply the PFA by the PVA.
  • Customer Lifespan Average. The amount of time, on average, that a customer continues to purchase from you.

Now you can work out how much an average customer is likely to spend on your brand during their likely purchasing lifespan:

  • Customer Lifetime Value Average. Multiply customer value by customer lifespan.

Calculating Non-Average Customer Lifetime Value

The average CLV is your benchmark figure, and the next step is to find out which of your customer segments are spending more than average. Start by determining the segments you want to look at – you could use demographics, behaviour, or subscription, for example – and then carry out the same calculation as above but for the segment you’ve identified.

The calculation can also be carried out at the most granular level, which is the individual customer. Knowing the value of a customer can be useful in terms of targeting them for promotions or offering them incentives to renew a contract with your brand. 

Individual Customer Lifetime Value Calculation

  • Customer’s Annual Spend – £250
  • Customer Lifespan – 5 years
  • Cost to Acquire – £30
  • Customer Service Cost Per Annum – £30

Multiply the annual spend by the lifespan = £1,250

Subtract the cost of customer service and acquisition = £920

Customer Lifetime Value = £920

How to Increase Customer Lifetime Value

Increasing the value of your customers’ lifetime spends is a more cost-effective marketing strategy than basing growth on the acquisition of new customers. CLV also offers important information on the kind of customers you would want to attract, and the touchpoints that are most likely to produce conversions.

Increasing customer lifetime value will look different for each business. At Prolog Fulfilment it’s one of the metrics we use when working with eCommerce brands that are looking to scale. We examine data and proactively suggest ways that brands can improve their customer experience and grow customer loyalty. Proven strategies include:

1. Product Customisation

Online shoppers want goods to arrive on time and in excellent condition but, beyond that, they’re looking for an experience that feels unique and special to them. Customisation offers an opportunity to enhance the unboxing experience for customers. Prolog provides a range of in-house specialist customisation services as part of our 3pl value-added offering.

returns management

2. Returns Management

High numbers of returned goods not only prove a drag on profits; unless handled well they can also cost you customers. At Prolog we offer experienced returns management which not only provides a frictionless process for customers, but also learns from the returns data we log. Removing glitches in the service, solving recurrent product glitches, and improving information on the website can all increase CLV for brands.

3. Offer a Subscription Service

Show customers that a subscription to your brand means more convenience, more perks, and more choice. Subscription services are a growing market with UK shoppers spending £2 billion each year on them. Prolog is an experienced subscription partner for a range of brands including cosmetics and beauty products, pet treats and accessories, wellness products and crafting materials.

Interested in Increasing Your CLV?

Prolog Fulfilment is a proactive 3pl that works dynamically with brands to maximise their potential for scaling. We don’t just offer the basics; at every stage of the order fulfilment process, we provide a personalised service, tailored to your brand and committed to growing customer lifetime value.

If you are at the point where you’re looking for a 3PL partner whose willing to invest in a long-term relationship with your brand, we’d love to talk. Prolog has an established fulfilment centre, located at the heart of the UK, with flexible warehousing and a trained, highly motivated workforce.

Would you like to find out what makes us different? Call Prolog Fulfilment today on 01623 724000 to speak to a fulfilment expert or message us.

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