Measuring Customer Lifecycle Value

As the analysts have been telling us for a year or so now, digital business puts people right in the center of activity – they can get what they need, where, when and how they want today.

The traditional model of finding a new customer, selling to them, and then moving on to the next opportunity has changed. Research has consistently shown that it costs less to sell to an existing customer than to find a new one, and that customers who feel engaged with a brand or product will spend more on repeat business through the lifetime of ownership.

However traditional measurements like Net Promoter Scores or Customer Satisfaction scores are reactive, descriptive, and sentiment-based, while what is needed is something that is predictive and performance based – a measurement of the Customer’s Lifecycle Value (CLV) to the business.

Customer Lifecycle Value is usually formally described as amount of revenue, or profit, that a customer, or defined group of customers, generates over their projected lifetime of interaction with a company. This could be argued to be a somewhat myopic viewpoint as it presupposes a traditional sales cycle and a finite predefined timeline of customer engagement.

In today’s digital world, by delivering a continuous connected customer experience, it is possible to grow a customer’s interest and investment in a redefined relationship that delivers benefit to both the customer and the enterprise, resulting in a CLV model that measures interaction and investment at different stages of interaction.

Digitally sophisticated customers and partners increasingly research products, make purchases, track orders, and manage their accounts or subscriptions online. Customers increasingly expect these transactions to seamlessly transition from one digital platform to another, while retaining a consistent personalized experience, with data, information, and assets moving seamlessly from one environment to another.

Serving your customers across a continuous digital experience journey maximizes Customer Lifecycle Value and increases revenue potential

If you invest in your customers they will invest in you with their time, information, brand loyalty, recommendations, and ongoing sales. Investment in customer experience means delivering a continuous connected digital experience that will increase a customer’s lifecycle value to you as a business.

The CMO Council recently looked at how marketing executives quantify customer engagement success. More than a third of respondents said that revenue metrics, like Customer Lifecycle Value (CLV), revenues per customer, and overall revenue increases were the primary type of metric they used to measure consumer engagement.

Mathematical models (Segmentation and Lifetime Value Models using SAS, Malthouse 2013) have shown that changes as small as a 5 percent increase in customer retention can bring increases as high as 80 percent or more in a CLV.

In mathematical terms maximizing the Customer Life Cycle Value in a continuous connected digital engagement model can be expressed as:

CLVequation

The more other departments invest and buy in to the overall direction, the greater the experience, the greater the customer’s investment. The benefits from committing to a combined, systematic approach to growing and measuring Customer Lifecycle Value across the enterprise include:

  • Increased customer retention rates
  • Increased customer satisfaction scores
  • Increased revenue

It has been proven that increases in Customer Lifecycle Value can drive revenue. By taking that a step further and managing on CLV to deliver outstanding customer experiences you can also drive sustainable growth across the enterprise

To find out more, you can download the whitepaper “Drive More Revenue by Measuring and Managing Customer Lifecycle Value.”

Alan Porter

Alan J. Porter is the Senior Product Marketing Manager for the OpenText Customer Experience Suite. He is a regular writer and industry speaker on various aspects of Customer Experience and Content Strategy.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *