What Is Customer Lifetime Value (CLV) and Why Small Businesses Should Embrace It
Customer Lifetime Value (CLV) is a powerful marketing concept. Embracing it can be game-changing for small businesses.
Many small business owners successfully do it. Apple does it masterfully. And there are many good reasons why you should consider doing it too.
I am talking about embracing the concept of Customer Lifetime Value or CLV for short.
The CLV concept measures a customer's value not by a single transaction but by the sum of all potential purchases over the lifetime of the relationship.
Although the CLV concept may sound a bit mathematical, it is far from being a number-crunching exercise. Instead, CLV is one of a few fundamental marketing concepts. At its core, it states that customers who repeatedly buy from you can vastly exceed the revenue potential of customers who only purchase once. While this insight may sound a little bit like a no-brainer, its implications on your business model and marketing strategy can be profound.
Retaining Existing Customers Becomes Your Priority
The reason many successful brands resonate with customers is that they have a clear, easy-to-understand purpose.
This common cause can be many things. For example, a brand could make their products only from recycled materials, use only organic ingredients or ingredients sourced from a particular region. Other brands could pledge to donate a certain percentage of their profits to plant trees, clean up the oceans, or help families in need.
A brand that can articulate a clear purpose will more easily attract and retain customers that share the same view.
According to the Future of Commerce survey, which Shopify conducted in 2021, "62% of younger consumers prefer to shop for sustainable or green products compared to 53% of middle-aged consumers." The same survey states that 32% of younger consumers shopped at independent retailers "to have a positive impact on society."
Articulating a clear purpose is the easy part. Following it consistently in all of your actions by everybody in your firm every day is much more challenging.
One of the biggest mistakes a business can make is believing that customers wouldn't notice if a company pursued different goals in real life than what it states on its website or advertisements.
Given the wide use of social media, some companies were surprised about the severity of their customers' reactions when they realized this mismatch.
My advice is simple: be authentic and always mean what you say.
Reward for Referrals
Everybody expects that a business talks highly about its products and services. However, it is much more convincing if an existing customer does. I am not talking about paid influencers. I am talking about your repeat customers.
Speaking positively about your offerings can come in multiple forms, such as a positive product review or a referral. If an existing customer refers you to a friend, you can reward them for their effort. The best would be if you could make referrals part of a professional loyalty program.
Implement a Professional Loyalty Program
A loyalty program is a company-sponsored initiative that encourages customers through discounts, rewards, or special incentives to make repeat purchases from you.
A loyalty program does not necessarily need to have a monetary component, although most do. It could also give loyal customers access to a library of exclusive recipes and tutorials, or early access to products and features.
Communicate Regularly With Your Customers
Whether you are sending out a newsletter, posting videos on YouTube, or engaging on social media, you need to do this regularly and follow a set cadence. Those customers interested in your information will learn that you post on Mondays or Thursdays — like in my case — and are waiting for new content.
Engage With Your Customers
Communication is one-directional in the sense that a company creates content that it distributes to its customers through email or text or makes available on its website.
Engagement happens when customers respond to your content on social media through email, in person, or in a product forum. They can give you valuable feedback about where you could improve, about new product ideas, or about what your competitors do.
My advice is to welcome feedback and take any suggestions seriously. You can also think about bringing like-minded customers together as part of a user panel. However, engagement takes time and resources. Be prepared to dedicate time, money, and headcount to make it happen. But the value you can derive from it can be tremendous.
Embracing the Concept of Customer Lifetime Value Can Be Game-Changing
Instead of constantly onboarding new customers, you can spend more time developing a deeper understanding of your customers' business challenges and, subsequently, creating more tailored solutions addressing them.
Embracing the concept of Customer Lifetime Value can also change your perception of what a closer relationship with your customers means to you. For me and my business, it means making a positive difference in my clients' professional lives and getting them one step closer to realizing their dreams.
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