The Measuring Stick: Customer Lifetime Value

Most of us know, generally, how many customers we serve over the course of a year. But have you ever stopped to think about the value of each one?

Customer Lifetime Value (CLV)

This is a way of measuring how much your customers are worth to your business over the time they buy your products and services. A well-run CLV program can help you identify which customers are worth your greatest attention – and can help you make the most of your marketing dollars.

Here’s how it’s done:

Average Annual Spend X Length of Relationship = CLV

If a customer typically spends $1000 a year / Customer stays 5 Years = $5000 CLV

Knowing this can help you justify marketing dollars over the long term. So often a business only examines the success of a campaign over the initial weeks that it ran, ignoring long-term benefits.

Tracking this the CLV helps you decide how to readjust your advertising so it can work better. For instance with regards to one of the events I market, which is a high-end conference, I know that through surveys it often takes an attendee two years to decide to sign-up. This means the advertising we ran last month may not pay-off for another 23 months. Understanding this concept will help you spend your money more wisely, and produce better results.

Of course you won’t know this unless you decide to start measuring your marketing efforts…