Video: What is Customer Lifetime Value

Published on — Written by Wonderflow

Customer Lifetime Value
Today we would like to talk about the most important one, which is Customer Lifetime Value.

It measures how much profit your customers will generate during their relationship with your company. It shows how healthy your customer base is, and how likely your company is to grow in the future. Let’s call it CLV from now on.

If you enjoy this type of videos, subscribe to Riccardo Osti’s channel in YouTubeThe truth is that Customer Lifetime Value is a very important metric that can be used to make decisions about sales, marketing, product development, and customer support

This KPI is critical to identifying the most profitable type of customer for your business and those that will bring more results in the future. For example, CLV can be helpful to design loyalty campaigns and promotions that benefit those customers who bring prosperity to your business, so that your investment has more focus and higher returns.

We could say that the CLV measures how good your relationship expertise really is, and therefore it’s the first metric you need to implement. Knowing the health of your relationship gives you an indication of what you can expect in terms of revenue and cost to maintain that customer.

So, how can you measure it, and how can you use CLV for your business?

Let’s say that if you have never used this KPI before, you could start by measuring the single values that we need to make the calculation. For example, you could ask yourself these questions: “how much do I need to spend to get a customer”? Or;  What do I have to do to keep this relationship profitable?”

There are several formulas you can use to calculate the Customer Lifetime Value, but we recommend to use a simple one, like the one we use at Wonderflow, which is as follows:

CLV equals to profit per year multiplied by the average duration of the relationship

CLV = Profit per year  X Average duration of the relationship

How do you find the average duration of the relationship with my customers? 

To calculate this you just have to divide the number of your customers by the sum of the years they have been your working with you. 

Here’s an example: you have 10 customers, and the sum of the duration of your collaboration with them is 36 years. The average duration of the relationship would be 36 divided by 10, 3.6 years.  (36 years/ 10 customers =3.6 years)

Now let’s say that on average you sell your product for 5 thousand euros per year and that to serve a client you spend 3 thousand euros. Your profit would be 5 minus 3, resulting in 2k

(5k -3k = 2k)

To obtain your customer lifetime value you just have to multiply 2k per 3.6 years, resulting in 7 thousand two hundred euros. Is it clear enough? If not, I would recommend reading more at the link that you find in the link.

For more interesting content, click here.

About Wonderflow

Wonderflow empowers businesses with quick and impactful decision-making because it helps automate and deliver in-depth consumer and competitor insights. All within one place, results are simplified for professionals across any high-UGC organization, and department to access, understand, and share easily. Compared to hiring more analysts, Wonderflow’s AI eliminates the need for human-led setup and analysis, resulting in thousands of structured and unstructured reviews analyzed within a matter of weeks and with up to 50% or more accurate data. The system sources relevant private and public consumer feedback from over 200 channels, including emails, forums, call center logs, chat rooms, social media, and e-commerce. What’s most unique is that its AI is the first ever to help recommend personalized business actions and predict the impact of those actions on key outcomes. Wonderflow is leveraged by high-grade customers like Philips, DHL, Beko, Lavazza, Colgate-Palmolive, GSK, Delonghi, and more.

Start making winning decisions based on customer feedback todayGet a free demo

Other articles you might like:

wonderflow image

Product Development · Sep 12, 2022

Proper Review Analysis: How to Analyze Customer Reviews (+ Examples)

It’s pretty difficult to imagine a world without reviews. Not many of us walk into a shop and make a purchase without browsing at least a handful of online reviews beforehand.  In fact, a study from TrustPilot found that almost 9 out of 10 customers consult online reviews before buying.  Though these reviews are incredibly helpful to consumers, for business owners, trying to use reviews to guide the product development process or improve the customer…

positive customer reviews

Marketing · Aug 25, 2022

More Smiles, More Stars: 10 Examples of Leveraging Positive Customer Reviews

Brands know that reviews are everything. Whether they are positive, negative, or neutral, customer feedback is at the core of any business. It’s a matter of how well your company leverages or responds to each type. For instance, positive customer reviews are just as powerful of an influence on business success, if not more, than negative ones. And do you just simply smile when you see a customer’s compliment? Of course not! You may want…

utility cx

Utility & Energy · Aug 09, 2022

More Than Another Bill: Why VoC Programs Improve Utility CX

When did your utility provider last ask you to rate your customer experience (CX) with them? With rising competition, energy costs, customer demands, and regulatory and stakeholder pressure to improve customer services, these key factors drive service providers of water, electricity, and gas to engage deeply with their customers. Old traditional business models must be changed to adapt to the times, and utility brands must prioritize CX more than ever before.  The Utility Customer Experience …