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customer life time value

1. CLV (Customer Lifetime Value) Presented To Presented By Mr. Sohail Yasin Ranjeev Kumar Varun Batra

2. Customer Lifetime Value(CLV) : Customer Lifetime Value (CLV) a marketing metric that projects the value of a customer over the entire history of that customer's relationship with a company. It is the current value of the likely future income flow generated by an individual purchaser.   It seeks to maximize profit by analyzing customer behavior and business cycles to identify and target customers with the greatest potential net value over time. A Profitable customer is one that overtime yields a revenue system that exceeds by an acceptable amount of the company's cost stream of attracting, selling and servicing that customer over time.

3. Customer Lifetime Value Formula CLV =  Average Transaction Size x Number of Transactions x Retention Period Customer Lifetime Value Examples: The best way to understand CLV is through examples. Here are examples from three very different industries to better demonstrate how customer lifetime value may impact your company: Coffee shop A coffee shop is a perfect starting example for CLV, as it is easy to understand even if you don’t have an extensive business background. Let’s say a local coffee chain with three locations has an average sale of $4. The typical customer is a local worker who visits two times per week, 50 weeks per year, over an average of five years. CLV =  $4 (average sale) x 100 (annual visits) x 5 (years)  = $2,000

4. Car dealership A car dealership has a much higher average sale amount with a lower purchase volume. In this example, we'll assume someone buys a new car every five years for $30,000. Customers are loyal to this brand and tend to keep buying from it for 15 years. CLV =  $30,000 (average sale) x .2 (annual purchases) x 15 (years)  = $90,000 Software as a Service (SaaS) subscription For the last example, let’s assume an online video streaming service has multiple price plans, but the average customer spends $17 per month. Customers typically subscribe for three and a half years and use automatic monthly payments. CLV =  $17 (average sale) x 12 (annual purchases) x 3.5 (years)  = $714

5. Importance of  understanding Customer Lifetime Value "Customer lifetime value is not just a number; it is a way of thinking and doing business“ Knowing and fully understanding the customer lifetime value changes the business perspective to a great extent. To begin with, company can use it to estimate the current value of all its customers. By knowing the current value of the customer, you can then segment customers into different categories. Segmenting helps to concentrate more on the profitable customers. For instance, discount brokerage company Charles Schwab answers its best customer's phone calls within 15 seconds while other customers have to wait for as long as 10 minutes to have their calls answered. Once customers are segmented based on profitability, you can tailor your offerings to various segments.

6. Segmenting Customers Companies around the world are increasingly segmenting their customers in order to increase profitability. Segmenting helps companies to tailor their offerings to each of the segment. One of the common ways of segmentation is based on loyalty & profitability. After segmenting customers, companies tailor their offerings, marketing strategies to convert existing customers to become more loyal and more profitable. Segmenting helps companies to allocate their marketing resources based on the customer value. Customer lifetime value give a formalized depiction of a long-term view of the customers and gives a better picture of what the company is going after.

7. Increasing customer retention Traditionally, most marketing theory an practice centers on attracting new customers rather than retaining existing ones. Since acquiring a new customer costs a lot more than retaining one, it is wise to measure customer satisfaction regularly. The key to customer retention is customer satisfaction. A highly satisfied customer stays loyal longer, buys more products or services, pays less attention to competing products or services, is less sensitive to price, offers product or service ideas to you, and costs less to serve than new customers. To improve customer retention, you need to analyze customer defection. Analysis can start with the internal records such as sales log, point of sale receipts records etc. Next step would be to use market research such as bench marking studies and statistics.?

8. Why Is Customer Lifetime Value Important to Businesses? Why Does It Matter? In the example above, we figured out the average lifetime value of a customer for a grocery store. But why do businesses care about CLV? Here are a few key reasons to track and use CLV: You Can’t Improve What You Don’t Measure: Once you start measuring customer lifetime value and breaking down the various components, you can employ specific strategies around pricing, sales, advertising and customer retention with a goal of continuously reducing costs and increasing profit. Make Better Decisions on Customer Acquisition Costs: When you know what you will earn from a typical customer, you can increase or decrease spending to ensure you  maximize profitability  and continue to attract the right types of customers. Improved Forecasting: CLV forecasts help you make forward-looking decisions around inventory, staffing, production capacity and other costs. Without a forecast, you could unknowingly overspend and waste money or underspend and put yourself in a bind where you struggle to keep up with demand.

9. Advantages of Customer Lifetime Value Improve Customer Retention: One of the biggest factors in addressing CLV is improving  customer retention  and avoiding  customer attrition . Tracking these details with accurate segmentation can help you identify your best customers and determine what’s working well. Drive Repeat Sales: Some retailers, tech companies, restaurant chains and other businesses have loyal customer bases that come back again and again. You can use CLV to track the average number of visits per year or over the customer lifetime and use that data to strategize ways to increase repeat business. Encourage Higher-Value Sales: Netflix is an example of a business that improved CLV through higher pricing but learned years ago that  increasing costs too quickly  may scare off long-time customers. The right balance is key to success here. Increase Profitability: Overall, a higher CLV should lead to bigger profits. By keeping customers longer and building a business that encourages them to spend more, you should see the benefit show up on your bottom line.

10. Challenges of Customer Lifetime Value It Can Be Hard to Measure: If you don’t have quality tracking systems in place, calculating CLV can be difficult. An  enterprise resource planning (ERP)  or  customer relationship management (CRM) system  can make this information easily available on an automated dashboard that tracks KPIs. High-Level Results May Be Misleading: Looking at a business’s total CLV can be a helpful data point, but it can also cover up problems in certain customer segments. Breaking down the data by customer size, location and other segments may provide more useful data.

11. Ways to Improve CLV Customer Loyalty or Rewards Programs: Customer loyalty programs keep customers engaged and reward frequent purchases. Airline frequent flyer programs and restaurant punch cards are popular examples. Incentivizing customers to return can increase purchase frequency and the amount of time a customer buys from a brand. Customer Experience: Your website, storefront, call center and other touchpoints are all part of the  customer experience . If customers enjoy a smooth, low-stress shopping experience every time, they are more likely to return for repeat business. Improve Customer Onboarding: Some customers buy a product or service from a business and don't know what to do next. Successful businesses chart a path for their customer relationships over time. Turning a one-time customer into a source of recurring revenue is essential for growth in many industries. Customer Engagement: Businesses that actively monitor all interactions between the company and their customers can identify ways to improve the customer experience and customer loyalty. This should span channels like advertising, customer support and sales Improved Customer Service: Bad customer service is a quick way to see your CLV quickly fall, as customers leave for competitors. Focusing on making every customer service interaction a positive one will further enhance customer loyalty. CRM systems and dedicated customer service platforms bring these interactions to one central location for streamlined management.

12. Customer Relationship Management: Businesses need to understand their relationships and communication history with customers across sales, customer service and marketing. ERP and CRM systems help track and enhance these relationships over time by creating a seamless flow of information across the entire customer lifecycle — from lead all the way through opportunity, sales order, fulfillment, renewal, upsell and support. Invest in Technology & Software: Technology can automate processes and track and centralize much of your business data. Some companies rely on basic tools like email, spreadsheets and contact databases to manage all this information, but it’s much easier to use proven, packaged software suites to handle these functions. Your customers will notice the difference. Upsell and Cross-Sell: It's often easier to reengage or upsell an existing customer than bring in a new one. Upselling and cross-selling are strategies designed to encourage customers to buy more expensive or multiple products or services at once instead of a lower-cost option. Increase Pricing: When done correctly, a price increase can directly increase CLV. Just take care to avoid scaring off customers with dramatic price increases. Also, consider competitor pricing when determining your own. By focusing on value and giving customers something they can’t get elsewhere, you may be able to increase pricing without losing customers. Social Media: One of the best places to get your customers' attention is to reach them in places where they already spend time. Social media platforms like Facebook, Instagram, Twitter and YouTube are meaningful channels to both advertise and interact with customers.

13. THANK YOU