Smart CRM Basics: How to Calculate Customer Lifetime Value (CLTV)
The advantages of utilizing CLTV are limitless. See how you can find yours
Customer Lifetime Value is perhaps the most shining north star in the sky of CRM Marketing. When talking CLTV in that context – you need to think of both the past and future value your customers bring.
Looking at just conversion rates and first purchases, for instance, while ignoring the long-term value of customers, may lead you to invest resources in acquiring customers with low total revenue. While instead, you’d probably be better off investing in customers who will deliver a steady stream of income in the future.
By combining both the past and future (predictive) value, you’ll easily be able to assess the full potential value of each of your customers. Reliable LTV will help your company better manage customer relationships and maximize the effectiveness of marketing and retention actions.
But it all start with getting the numbers right. Watch the mini-workshop or read the transcript just below it to learn more:
How To Calculate CLTV
Calculating CLTV requires accurate estimates of future events and is therefore very challenging. It is hard to predict parameters such as how long a customer will remain engaged with your brand and how much they will spend in a specific period.
Therefore, there are two methods to help you calculate CLTV:
- Simple method using Excel – involves creating a cohort of new customers and following their cumulative spending over time.
- More accurate but complex method – building a customer model based on predictive micro-segmentation. That’s the Optimove approach, and here’s how we help you achieve it effortlessly.
To calculate the future value of customers, Optimove uses a micro-segments-based predictive customer modeling system. Segmenting your entire customer base into granular, homogenous groups based on customer activity and other variables makes it possible to analyze and predict customer behavior and lifetime value with high accuracy.
Future Value Calculation
Optimove calculates the future value of customers based on the Total Revenue generated and the probable migration path for each micro-segment. Using this model allows you to find out, on average, how much value a customer in each of the micro-segments is expected to generate over the next year.
Then you can track the migrations between the micro-segments during specific periods and check how much revenue the user who migrated within that period generated.
The Final Word
Focusing your CRM Marketing efforts on lifetime value will help you optimize your marketing actions to convert more customers, increase the spending of existing customers, and reduce customer churn. Ultimately, when LTV is used as the basis for marketing decisions, it will maximize your company’s revenue.
Growing through your existing customers the right way can result in a more than 33% increase in CLTV.
Don’t miss out on previous Smart CRM Basics:
- Customer Engagement Strategies
- Marketing Action Optimization
- Customer Intelligence
- Predictive Customer Behavior Modeling
- The Single Customer View
- Control Groups in Marketing
- Customer Churn Prediction and Prevention
- Relationship Marketing
- Customer Behavior Modeling
- B2C Marketing
- The Power of ML
- eCommerce Marketing