How to calculate Customer Lifetime Value (CLV) and increase your bottom line?
According to a Columbia University study, the average cost of acquiring a new customer is six times higher than the cost of keeping one. Therefore, if you had the ability to measure the lifetime value (CLV) of your customers, you could deduce how much to invest in maintaining your current customers and how much to invest in acquiring new customers.
The CLV can be calculated in several ways, but all of them involve calculating the net profit per client (CNC) and the time that this profit lasts. The CNC is calculated by dividing the gross profit (GP) by the total number of customers. The length of time this utility lasts is calculated by dividing the net utility (UN) by the total number of customers.
To calculate the CLV, multiply the CNC by the time this utility lasts. Then, subtract the cost of acquiring a new customer (CAC) from the value obtained. The result is the CLTV.
If you want to increase your bottom line, you should invest in the maintenance of your current customers and in the acquisition of new customers. The investment in the maintenance of your customers is calculated by multiplying the CLV by the maintenance cost. The investment in acquiring new customers is calculated by multiplying the CAC by the number of customers you want to acquire.
CLV is a useful tool to measure the success of your marketing strategy. If the CLV is higher than the CAC, you are investing in customer acquisition efficiently. If the CLV is lower than the CAC, you should reconsider your marketing strategy.
