Question

1. Explain the importance of Customer Lifetime Value?  Why is it important and what is it used for?

Answer 1

Customer lifetime value (CLV) is defined as the total amount of money that individual customers are likely to spend in a product or service of business during their lifetime.

For example, A customer spends $100 every year and has been a customer for 3 years. If the cost of acquiring is $10, then the customer lifetime value = ($100 x 3 years) - $10 which is $290. The higher the number of customer lifetime value, the higher the profits. The importance of customer lifetime value is:

• It helps to determine how wel a company has resonated or have created an impact on the products or services to the customers.
• It helps to identify how much a customer likes or interested in paying for the product or service of a particular brand.
• It helps to identify what a business is doing right and in what areas it needs improvement.
• It helps to identify what programs can be used (like loyalty programs, coupons, and special offers) to build a positive relationship.

Even though acquiring new customers is the main motive of a company to capture the market, retaining the existing customer plays a crucial role for them to sustain in the market. When the customer lifetime value is known, it can improve be improved and worked on to retain the existing customers and create a seamless buying experience through various mediums like social media, email, SMS, etc.,