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Discover the 10 reasons why Customer Lifetime Value (CLTV) is the gold standard of data for scaling your business. Learn how this metric can help you determine the sustainability of your company, validate your product, gauge your team's effectiveness, and more. Plus, find out how to invest your time, attention, and money to maximiz=se profitability and build a customer-centric brand in the era of connection.
We believe Customer Lifetime Value (CLTV) is one of the best metrics you can use to scale your business. In the internet age, the behaviour exhibited by customers can divert down one of two paths. With Shorter attention spans across the board, customers tend to buy once with a brand only to never shop with them again. The alternative is that a customer becomes a devout follower of a brand, interested in everything they have to say. This is what’s referred to as a high customer lifetime value.
Customer lifetime value (CLTV) is a metric that estimates the total revenue or profit a business can expect to generate from a customer throughout their entire relationship with the company. CLTV helps a business to understand the long term value of a customer beyond an individual purchase.
Typically, the higher a brand’s CLTV is, the better. A high CLTV is an indication that a customer has had a positive experience with the brand and is willing to buy again.
Here are 10 reason's why CLTV is the gold standard of customer data:
When you look at CLTV in relation to Customer Acquisition Cost (CAC), you will have a good idea of how sustainable and profitable your brand is currently operating. Whilst not a crystal ball of how profitable your business will be, a high CLTV is a great indication that you have a brand with scalability, pair that with a low CAC and, with the right growth strategies, the sky's the limit.
You do need to be mindful that this ratio isn't too high. Best practice indicates that anything above a 4:1 ratio of CAC to CLTV indicates that you aren't spending enough on your marketing, and that you should look to invest a bit more in your business.
There’s no better indication of a fully functioning team than happy, returning customers. If your CLTV is low, there’s a gap somewhere between your message, your product, or the customer experience.
There’s no better proof of market validation than your CLTV metric. One of the biggest challenges in any eCommerce empire’s growth is the right product, for the right people at the right time. A high CLTV says you’re doing a lot right!
A high CLTV in a market notoriously known for short attention span and disloyal customers is a great indication that you’re running a real brand that will stand the test of time against competitors.
Understanding the CLTV metric versus how much it costs you to attract a new customer can help you decide how to segment your audiences, team focus and ad budget to make sure you’re spending enough time and money in the right places to become maximally profitable.
High CLTV is not only an indication of a great product, but it means you’re getting the post sale experience right, too.
A high CLTV means there is clarity in how you’re communicating the value of the product and the quality of the product itself. Essentially, your customers feel like they’re getting what they paid for (or even better). Messaging is notoriously difficult to hit the nail on the head, for newer brands a high CLTV is a really good sign you’re getting this part right. For more established brands, this might mean you’ve found your core message, and you should look to stick to it as tightly as possible.
If, once your customers have bought, they come back again and again, but getting them to buy in the first place is a whole different story, then there’s likely a gap somewhere in your messaging. Your audience aren’t understanding the value of the product or what it’s going to do for them until they actually buy it. It's likely your content or marketing is lacking, Look through your website, and find opportunities to improve product descriptions, blogs, and product imagery so that the customer has a better hold of the product before they've purchased it. Content will crown you king after all.
there are other opportunities to learn from too. Ask your existing customers why they bought the product. Is there something that doesn’t align with your current marketing strategy? There's a lot of gold that can be found digging through that kind of data in relation to CLTV.
We talked about this in a recent blog post, but connection with your customers is everything. And, there is no greater sign that you have a human-first and connection-focused brand than your customers wanting to stick around. Any strategy you can implement that focuses on increasing the brand-customer connection will be key in helping you stand out from the noise.
Looking at your CLTV in relation to CAC, ROAS, and AOV can give you a good indication of how much to invest in client retention, email marketing and retargeting versus cold and new audience advertising. Keeping an eye on this data as you grow will help you adjust your market spend more wisely.
CLTV is everything as we move into an era of business where relationships and community are everything.
If you’ve never paid attention to this metric before or you feel like it’s not relevant to your brand, now might be a good time to reconsider.
If you’re stuck on coming up with creative new marketing strategies to increase it, then a quick chat with us might just help you out.
