Customer lifetime value (CLV) is a measure of the total profit generated by a customer throughout their relationship with your brand. This can be calculated using several factors, including how much revenue each customer generates, how long they keep that revenue flowing in, and what other costs are associated with them. The higher a company’s CLV, the better positioned it is to survive in today’s competitive marketplace. Here are four ways marketers can benefit from CLV analytics.

Improving marketing ROI

Customer lifetime value (CLV) is the total revenue generated by a customer across the entire length of their relationship with your business. It’s also a key metric for marketers to be aware of because it can help them improve marketing ROI and optimize marketing spending.

The CLV analysis process starts with determining the average annual revenue per user (ARPU). This is calculated by dividing total annual revenue by the total number of users in a given period. Then, you calculate CLV as follows:

• CLV = ARPU x Customer Retention Rate x Discount Rate
• Discount Rate = 1/(1 + Interest Rate)^Number of Years

You can use this formula to figure out whether customers are worth more today than they will be tomorrow—and how much they’ll be worth down the line. If your interest rate increases as time goes on, so will your discount rate; however, if you want everyone who comes through your door right now to stay around forever, then make sure that the discount rate stays low.

Personalizing content and experiences

Personalizing content and experiences based on lifetime value can help you make your marketing more impactful, as well as increase the value of each customer to your business.

For example, if you’re a retailer selling clothing online, you can use customer lifetime value to determine which customers are most likely to purchase items in each category. You could then offer customized recommendations based on those categories: “This dress would look great on you. It’s your best-selling item right now.” Or maybe even “This dress is popular among your younger female customers like yourself.” This personalized messaging will help encourage these customers to buy from your site—and reduce friction around the checkout process by providing them with exactly what they want and need at that very moment.

Optimizing acquisition costs

Acquisition costs are one of the most important metrics for marketers to track. These metrics measure how much it costs you to acquire a customer and can be used to optimize your marketing strategies.

Those in the know recommend that you should always have an acquisition strategy that includes a goal for reduced costs such as:

• Lowering the cost per conversion
• Increasing conversion rate (or increasing volume)
• Reducing CPL by improving LTV

Some way to improve acquisition costs is by improving your product’s value proposition so it delivers more benefits than competitors’ products do at any price point. This will help you attract customers who are willing to pay more because they see higher value in using your product instead of a competitor’s product.

Refining product strategy

Your analysis will help you determine which features are most valuable to customers and which ones are underutilized or not relevant at all. You can then eliminate or limit the latter, invest more in the former, and reap even greater ROI from features and improvements that add value for your customers.

If it turns out that some customers have much higher LTVs than others due to their use of premium products or services (or if there is simply too much variation in price among individual purchases), this could mean that there’s room for either increasing prices overall or offering discounts at certain points in time.

Conclusion

Customer lifetime value is a powerful tool for marketers, but it’s only helpful if you have access to the right information. As marketers, the job revolves mainly around the building and improving customer relationships. But if that’s your only objective, it can be very difficult to know whether you’re doing well at it—or even whether you should be doing it at all. Customer lifetime value can help you answer these questions by giving you a clear picture of what each customer means for your business over time.