It’s your CLV, it stands for Client Lifetime Value.
Your CLV is the total value of a client to you. Let me give you some examples…
If you’re a chiropractor and your sessions cost $80, and on average a client comes back ten times. Your client lifetime value is $800, or you can say a new client is worth $800 to you.
If you run a gym and membership is $15 a week, and most people stay for 2 years, your CLV (or client lifetime value) is $1,560 – so a brand new client is worth $1,560 to you.
If you’re a graphic designer, and a new client pays you $1,200 for a branding package, and on average comes back for 3 small jobs, worth $150 each. Your CLV is $1,650.
If you sell a product and people, only need to buy from you once, and your product is worth $25 – that’s your CLV.
So why is this so important?
Knowing your CLV gives you the understanding you need to make the right marketing decisions.
If you’re in a similar position to a gym, and you find a way to bring you in clients, let’s say it costs you $50 per client. If you don’t know your CLV, you MIGHT decide that that isn’t a great marketing strategy. Whereas when you know your CLV, you know that if it costs you $50 to get a new client, that’s still $1,510 you’ve made.
The other reason that this is so important is if you’re the person selling a product and your CLV is $25 – you know you need to be smart with your marketing spend so that you are still making money.
When you know what your CLV is you can make informed and educated marketing decisions, which will ultimately lead to more success in your marketing.
How do you calculate your CLV?
Let me ask some questions first:
- What is the average purchase price?
- On average, how often do they make said purchase in a given period (years/months)?
- How long (years/months) do they stay a customer/client?
Using these metrics, you can then calculate your CLV.
CLV= (Average Purchase Price x Purchase Frequency) x Length of Time
Just make sure your Purchase Frequency Metric and Length of Time metrics are the same.
So if you’re average purchase price is $86 and they make 4 purchases a year, and your customers stick around for 3 years.
Your CLV = (86 x 4) x 3 = $1,032
What do you do when you’ve calculated your CLV?
There are a few things you need to do once you’ve calculated your CLV
1. Identify ways to increase this number.
Can you create an incentive to keep clients longer, or improve your service? Can you add elements to your campaign/offering/checkout to increase the purchase price? Can you create a loyalty program or membership to incentivize more frequent purchases?
One of the things you need to be aware of in business is this number, and have strategies and goals in place around increasing this.
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2. Keep in mind when you’re identifying potential marketing strategies
Your CLV is an important number to keep in mind when investigating new marketing approaches. Not every marketer will ask you these questions.
I know that when I have a new client, it’s one of the first things I calculate. And I have a variety of options to suit. You don’t want to be using a high-cost acquisition strategy if you have a CLV, alternatively – you should be scared of a high-cost strategy if your CLV is high.
For some businesses paying $500 per lead is an absolute steal, for others, they need to be operating at 20c a lead. Knowing your numbers puts you in a position of power to make the right decision.
3. Recognize the different levels of CLV within your business
Keep in mind this is an advanced strategy – so keep that in mind if you keep on reading…
The CLV is an average number. It’s the average across your business. However, if you go a little further into the detail, you’ll find that there are a few different levels and types of clients.
Let’s call them 1,2 and 3. Your level 1 client buy the most from you and the most frequently, your level 3 clients buy the least, and the least frequently and level 2 is in the middle.
What you can do is create various campaigns around which level each client is. For example, your level 1 clients should be rewarded and made to feel like the valuable customers that they are. The more supported they feel, the more loyal they become – the longer they will stay a level 1 client.
With your level 2 clients, the goal is to get them to be level 1 clients. It’s a small jump from here to level 1, so extra incentives and promotions built around that are best.
And then focusing a small bit of attention around your level 3 clients. You don’t want to ignore them, but you also don’t want to spend all of your time and money trying to get their attention. The occasional campaign and promo are good – and implementing strategies to increase the value of a sale is best.
Make it your mission for the Christmas period to calculate your number and start working on some strategies to help – it’ll make such a difference to your marketing for 2017!