The Importance of Customer Lifetime Value (CLV)
There are many things that need attention and care in operating a business. As you operate your business, there may be times you overlook areas in which you should be extra careful, and one of those areas is customer satisfaction. Of course, it is important to focus on future customers, but it is also quite important to provide good customer service to the customers that have already purchased products or services so that they will become repeat customers. It would be nice if customers let us know when they have a complaint about their product or service or have suggestions to improve the business, usually when they are dissatisfied, they go to a competitor without saying anything to us. For example, if a person who goes to a restaurant and has a bad experience, but rather than expressing his dissatisfaction to the owner, he stops going to that restaurant completely and starts going to another restaurant. Of course, it would be impossible to satisfy 100% of your customers and keep them all coming back, but the value of one customer is surprisingly great because one satisfied customer is a more effective means of advertising than other methods.
There is a term, Customer Lifetime Value (CLV), which pertains to the value of a single customer and the benefits they bring in a single lifetime. Instead of focusing on a single transaction, the goal is to focus on raising a customer’s satisfaction over a long period of time to reap even greater results.
Take for example the average regular customer at Tim Horton, one of the most famous coffee shops in Canada. If they buy a cup of coffee every day, it should not be seen as a $2 coffee, but more than that. Although the customer only spends $2 a day, that's $60 a month, and $720 a year. If they drink coffee at Tim Horton for 30 straight years, that's $21,600. Adding to that, the customer may come by with friends or family and also recommends it to other people. These situations will increase the value even more.
Following this, the most important thing in CLV is the customer retention rate, as the higher the customer retention rate is, the greater the CLV is. If you understand the importance of CLV, rather than focusing on boosting sales immediately, you should think critically about how to increase your customer retention rate. As products and services increase in diversity, especially in recent years, consumers are pursuing more rational consumption, so it has become more difficult to increase customer loyalty and keep them satisfied.
Bringing satisfaction to customers is one of the biggest missions of any business. Instead of seeing a customer simply as a one-time buyer, even if it seems like a loss in the short run, treat your customer in a long-term perspective and transform them into loyal a customer. This single customer will become a huge business asset as well as effectively advertising your business. With this information, you can now go out and have better marketing and succeed in customer service while increasing CLV.