What is Customer Lifetime Value?
Customer Lifetime Value (CLV) is the net profit attributed to the entire future relationship with a customer. For subscription/continuity businesses, the most important metric to driving long term profitability and cash flow is CLV.
There is a revolution going on in the market today. Companies have learned that, though profitable acquisition of customers is important, it’s just as important to use science and technology to lift overall CLV. Most analysts expect CLV optimization will be commonly applied to all customer relationships in the next 5-7 years. The companies that adopt and exploit CLV optimization technologies first will be the market winners in the decades to come.
We calculate CLV as all of your direct product revenues less all of your direct product costs because including non-variable overhead in CLV calculations lessens the focus on variables that can improve performance.
Interested in an example of CLV applied to subscription and continuity businesses? Read this article.
Components of Optimizing CLV
There are three main components necessary to optimize CLV.
First, the ability to get analytical data. The RevGuard system integrates with your CRM and pulls key data fields, either actual data results or key predictive components. It then uses that data to do a raw CLV-To-Date calculation as well as an extrapolated CLV calculation. With the RevGuard system, you have the power to group and analyze the data by any range of factors that are in your database, customizing CLV analysis reports to target your focused area.
The second component of CLV optimization is having the ability to create cohorts. A cohort is a group that you define and establish and it can be grouped by affiliate, country, brand, gender or any other variable within your CRM. CLV-based cohort segmentation models allow companies to predict the most profitable group of customers, understand their common characteristics, and focus more on them. The ability to market to specific cohorts, instead of all your customers, is a key component of how RevGuard’s system improves CLV.
Lastly, and final component necessary for optimizing CLV is the ability to have automated A/B testing and customer service interactions. RevGuard is the only system that allows you to get segmentation and automated customer service customization by cohorts.