Customer Lifetime Value (CLTV) is the total revenue a business earns from a customer throughout their relationship. It directly links to customer retention, as higher retention means customers stay longer and spend more. By implementing customer retention strategies, you can increase CLTV and maximise profits.
It is always easier to sell more to your current customers than to find new ones. Studies show that businesses have a 60-70% chance of selling to existing customers, compared to only 13-20% for new prospects.
Doesn’t this instantly increase the value of your existing customers? Now, what if they stop buying? If this happens, your business loses money. Besides a fall in revenue, such instances also negatively impact your brand reputation.
One way to resolve this is by tracking Customer Lifetime Value (CLTV). It shows you how much money a customer brings to your business over time. By focusing on customers who stay longer and spend more, you can increase profits without always chasing new buyers.
So, do you want to build better customer loyalty? In this article, let’s understand what is customer lifetime value, its calculation, and factors that impact it. Also, we will check out some proven customer retention strategies to increase CLTV and how we at Atidiv can help you.
What is Customer Lifetime Value?
Customer Lifetime Value (CLTV) is the total amount of money a customer is expected to spend during the entire course of their relationship with your brand. It helps you understand how valuable each customer is. By tracking CLTV regularly, you can increase customer retention.
To calculate CLTV, you have to consider:
- How much do customers pay?
- How often do they buy?
- How long do they stay with your business?
It also includes costs like marketing, production, and daily operations. Mathematically, we represent it as follows:
Customer Lifetime Value (CLTV) = Lifetime Value x Profit Margin
Where,
Lifetime Value = Average Value of Sales x No. of Transactions x Retention Period
How to Calculate Customer Lifetime Value (CLTV)?
CLTV is directly related to customer retention. Using it, you can identify the best customers who bring you the most revenue. You can calculate CLTV using these steps:
- Average Purchase Value: Find this by dividing your total revenue by the total number of purchases in a given period.
- Average Purchase Frequency: This is how often a customer buys from you in that time.
- Customer Value: Multiply the average purchase value by the purchase frequency.
- Average Customer Lifespan: This is the average number of years a customer keeps buying from you.
- LTV Formula: Multiply the customer value by the average customer lifespan.
For more clarity, let’s study a hypothetical example:
Let’s say you own a SaaS company that provides cloud storage services. You charge customers Rs. 1,000 per month for a subscription. On average, a customer stays subscribed for 24 months (2 years). Your Lifetime Value = Rs. 1,000 × 24 = Rs. 24,000
Now, let’s say your profit margin is 40%. So, your CLTV would be Rs. 1,000 × 24 × 40% = Rs. 9,600.
What Factors Impact CLTV?
CLTV depends on how long customers stay with your business and how much they spend. If customers easily switch to competitors, CLTV drops. Below are two key factors that influence CLTV:
1. Churn Rate
Churn rate means the number of customers who stop using your product or service. It has an inverse relationship with customer retention rate. A high churn rate means several of your existing customers leave. This significantly lowers your revenue.
Small businesses and startups often struggle with this because they face strong competition and customers don’t yet trust their brand. To reduce churn and increase client retention, you should focus on:
- Improving customer service
- Offering discounts for long-term plans
- Providing a great user experience
2. Brand Loyalty
Brand loyalty refers to how much customers trust your brand and continue buying from you instead of switching to competitors. When customers are loyal, they stay longer. This increases your CLTV.
You can build loyalty and increase customer retention by:
- Offering excellent service
- Rewarding long-term customers,
- Maintaining good communication
Always remember that businesses with strong brand loyalty make more money over time because they don’t lose customers easily.
Top 5 Customer Retention Strategies to Increase CLTV
To increase CLTV, you should focus on keeping customers happy and engaged. This will make them stay longer and spend more. There are five ways to do it:
1. Keep Communicating With Your Customers
Talking to your customers regularly builds trust. It strengthens their connection with your brand and improves customer retention. To do so, you should regularly ask for feedback and use it to improve your services. Clear and friendly communication (through emails, messages, or calls) reduces churn and increases repeat business.
If customers feel heard, they are more likely to stay loyal. In turn, it increases customer retention and CLTV.
2. Re-engage Customers
Stay in touch with past customers through:
- Special offers
- Newsletters
- Reminders about your services
If a customer hasn’t purchased in a while, send them a discount or a personalised message. This keeps your brand in their mind and encourages them to return. Businesses with long-term products, like software subscriptions, benefit the most from re-engagement strategies.
3. Increase Brand Loyalty
Loyal customers stay longer and spend more. You can build loyalty and increase customer retention by offering:
- Rewards
- Excellent customer service
- Great product experience
A strong brand identity also allows customers to trust your brand. When this happens, they won’t switch to competitors easily. Thus, as per a general industry understanding, higher brand loyalty means higher CLTV, which boosts long-term profits.
4. Consider Bundled Pricing and Promotions
A great way to increase customer spending and loyalty is by offering:
- Bundled pricing
- Targeted promotions
Bundling means combining related products at a discounted price. This makes customers buy more, which directly increases CLTV. For example, a SaaS company offers project management software. Now, it can bundle the product with a team collaboration tool at a lower price than buying separately.
On the other hand, targeted promotions (like special discounts for returning customers) again encourage them to spend more. Here, you can track customer retention and repeat purchases to measure success.
Please note that even small increases in order value over time significantly boost revenue and customer lifetime value. This lets you enjoy long-term business growth.
5. Offer Good Customer Service
By providing excellent customer service, you can increase CLTV and customer retention. It keeps customers happy and encourages them to stay with your business for a long time. When customers feel valued, they are more likely to return and spend more.
To improve customer service, you should:
- Opt for omni-channel support options like phone, email, live chat, and social media. This allows customers to easily connect with you.
- Develop a fair return and refund policy. It builds trust and makes customers feel secure.
- Train employees in communication, problem-solving, and product knowledge.
- Collect customer feedback and use it to resolve issues.
Always remember that better service leads to higher customer satisfaction. This reduces churn and boosts your long-term revenue.
How Atidiv Can Help?
Atidiv specialises in increasing CLTV through our innovative and data-driven CX outsourcing solutions. Here is how we turn customer support into loyalty-building moments:
1. Higher Customer Experience
Atidiv increases customer retention by offering personalised and high-quality customer support. Our service focuses on building strong relationships, so customers stay loyal. We maintain a strong Customer Satisfaction (CSAT) score of 4.8,
Also, we provide omnichannel support across different channels (phone, email service outsourcing, chat, etc.). This makes it easier for customers to reach out. With us, businesses experience:
- Better customer engagement
- Fewer complaints
- More repeat purchases.
2. Data-Driven Insights
At Atidiv, our expert team uses customer data and analytics. This allows businesses to better understand their customers. To let you improve services and products, we track:
- Buying behaviour
- Customer preferences
- Feedback
Next, we analyse this data and let business owners like you predict customer needs and create personalised offers. This results in:
- Increased customer retention
- Higher CLTV
- Lower customer churn rate
3. Cost Efficiency
Hiring and training an in-house customer support team can be expensive. Atidiv saves businesses up to 60% by handling customer service. Instead of spending on salaries, infrastructure, and training, businesses can use these savings to:
- Improve their products and services
- Run targeted marketing campaigns
- Offer rewards and exclusive benefits to long-term customers
4. Proven Success Stories
In the past, we have helped businesses increase customer lifetime value and save costs. For example, we helped a US-based online tire retailer save $1.3 million while providing better support. This also led to higher customer retention and increased revenue.
Boost Your CLTV and Customer Retention with Atidiv!
Customer Lifetime Value (CLTV) is a key factor in building a successful business. As a business owner, you can maximise long-term revenue by improving brand loyalty and offering excellent service.
To increase CLTV and custom retention, you can opt for strategies like:
- Regular communication
- Re-engagement
- Bundled pricing
- Targeted promotions
Always remember that even small efforts in customer satisfaction can lead to significant profits over time.
Want to engage your customers and boost CLTV? Choose Atidiv and our expert customer experience solutions. Our team offers excellent customer support and uses advanced analytics. With us, you can save money while increasing customer retention. Partner with Atidiv today!
FAQs On Customer Retention Value
1. Why is my CLTV low despite having many customers?
A low CLTV usually means customers don’t stay long or spend enough. Usually, this happens due to:
- Poor service
- High churn
- Strong competition
To resolve these issues, you should focus on customer retention, improve support services, and offer loyalty programs. You can also use targeted promotions to encourage repeat purchases.
2. How can I reduce my customer churn rate?
To reduce customer churn, you must:
- Offer excellent support
- Respond quickly to issues
- Personalise interactions.
Additionally, keep your customers interested through loyalty rewards and special offers. When customers feel valued, they stay longer. This increases both your CLTV and revenue.
3. What’s the best way to increase repeat purchases?
Some of the best ways to increase repeat purchases are:
- Offering discounts
- Bundled pricing
- Subscription plans
- Exclusive deals
Also, stay in touch with customers through personalised emails and follow-ups. Remember that a great product experience and strong brand loyalty always make customers return. This gradually increases customer retention and CLTV.
4. How can I measure if my customer retention strategies are working?
You can track several key metrics like:
- Repeat purchase rate
- Churn rate
- Customer satisfaction scores
Compare past and present CLTV values to see if customer retention efforts are successful. If numbers improve, your strategies are working. If not, refine your approach by analysing customer feedback.
5. How does outsourcing customer support improve CLTV?
When you outsource to leading agencies, like Atidiv, your customers receive professional and round-the-clock support. This allows you to resolve customer issues faster, which builds trust. Mostly, it leads to better customer retention and higher CLT.