What is Customer Value and How to Leverage It for Business Growth?

Customer Lifetime Value (CLV) is the total revenue a business can expect from a customer over their entire relationship. By calculating it, you can identify high-value customers. This optimises your marketing efforts and improves profitability. A higher CLV means stronger customer loyalty and long-term business growth.

For most business owners, a successful business is a profitable business. But, do you know what’s more critical than your y-o-y profit growth? It’s your customers! A recent study found that customer-centric brands report profits that are 60% higher compared to those that do not prioritise customer experience (CX).

So, how worthy is a customer to you? Is there a way to measure it? Customer Lifetime Value (CLV) tells you exactly this. Using this metric, you can understand your customers:

• Purchase history
• Buying habits
• Vulnerability to churn

But, why does this matter? By understanding customer value​, you can focus on keeping your best customers happy. Instead of chasing every sale, you can invest in the people who bring you the most value.

Curious? In this article, let’s study what customer lifetime value is and how you can calculate it. Also, we will look at some signs that show you are at risk of losing CLV. 

What is Customer Lifetime Value​?

Customer lifetime value is a way to measure how much money a single customer brings to your business over time. Instead of just looking at one sale, this metric helps you understand how valuable a customer is throughout their entire relationship with you.

For example, 

• Say a customer buys from you regularly for five years. They are more valuable than someone who makes just one purchase and never returns. 

By calculating customer value​, you can identify such long-term customers and keep them happy so they continue to buy from you.

Why is Customer Lifetime Value​ Important?

Please understand that most customers’ needs change over time. Thus, if you want to keep them coming back, you need to understand their behaviour. Through customer value calculations, you can figure out where to invest your time and money to get the best results.

Let’s see how you can leverage customer lifetime value for business growth:

• Boost recurring sales to drive revenue

• • A study shows that about 42% of sales leaders say repeat customers are their biggest source of income.
  • Thus, instead of always chasing new customers, you can focus on keeping your best ones happy.
  • You can find such customers by calculating customer lifetime value.

• Better business decisions

• • Customer lifetime value helps you decide where to spend your marketing budget.
  • Also, you learn how to improve your products and keep customers engaged.

• Increase loyalty and reduce churn

• • When you know which customers bring the most value, you can tailor your services to keep them satisfied.
  • You can offer them better deals, rewards, and personalised experiences.
  • This prevents your valuable customers from leaving (churn).

How to Calculate Customer Lifetime Value​?

By calculating customer lifetime value, you can understand how much a single customer is worth to your business. It is not just about how much they spend but also about the profit they bring after covering costs.

Let’s learn how you can calculate customer lifetime value in easy steps:

Step 1: Calculate the Gross Customer Lifetime Value

The simplest way to calculate gross lifetime customer value is:

Gross Customer Lifetime Value = (Average Revenue per Customer × Customer Lifespan)

Step 2: Factor in Costs for Real Profit

Revenue alone doesn’t give you the full picture. You also have to consider how much it costs to serve that customer. Generally, these costs include:

• Cost of Goods Sold (COGS): It is the cost of producing or sourcing the product.
• Marketing Expenses: This segment represents the cost of acquiring and keeping the customer.
• Customer Support Costs: It covers any customer service or operational costs incurred to maintain the relationship.

Step 3: Calculate the Net Customer Lifetime Value

By now, you have calculated two things:

• The gross customer lifetime value 

• The total expenses incurred to maintain customer relationships

To calculate net customer lifetime value, you can use the following formula:

Customer Lifetime Value = (Average Revenue per Customer × Customer Lifespan) − Total Costs of Serving the Customer

For more clarity, let’s study an example:

• Say a customer spends Rs. 50,000 per year on your products.
• They usually stay with your business for 5 years.
• Now, the gross customer lifetime value is:
  • Rs. 50,000 x 5 years = Rs. 2,50,000

This means that, on average, this customer will bring Rs. 2,50,000 in total revenue over five years. Now, based on further analysis, you found that the cost of goods, marketing, and customer support per year is Rs. 15,000. This means your total cost over 5 years will be Rs. 75,000 (Rs. 15,000 × 5).

So, the net customer lifetime value is:

CLV = Rs. 2,50,000- Rs. 75,000 = Rs. 1,75,000

So, this customer is actually worth Rs. 1,75,000 in profit over their lifetime with your business.

Analyse Customer Lifetime Value in Different Situations

Customer lifetime value is not always about just the highest-spending customer. Value depends on business priorities. Let’s understand this phenomenon through two cases:

Please note that both types of customers are valuable even though the CLV differs. That’s because:

• Loyal customers keep your business stable over time

• High-spending customers bring quick profits (but need extra attention to stay long-term).

Here, the best strategy is to keep both types engaged and not ignore a particular class due to lower CLV. You should try to reward loyalty while also offering great service to new and high-spending clients. This approach will boost your long-term retention.

3 Common Signs of Decreasing Customer Lifetime Value​

Losing valuable customers can hurt your business! But if you spot the warning signs early, you can take action to keep them happy and loyal. Let’s check out three key signs of decreasing customer lifetime value :

1. Regular Fall in Spending

If a regular customer starts buying less from you, that’s a warning sign. For example, say a set of customers (of a specific genre) used to order from you every month. But now, they only buy once every few months. Or they used to purchase larger quantities, but now they’re cutting back.

Now, this clearly shows:

• They are trying out a competitor.
• They don’t see the same value in your product or service.
• Their business or personal situation has changed. This change has affected their spending.

To handle such a situation, you should:

• Check their purchase history and try to spot trends.
• Engage with them and ask if there’s a reason for the change. Maybe they need:
  • A discount
  • Better service
  • A new product option

2. Rising Complaints

Some big red flags to note are:

• Your customer support team has started receiving more complaints
• You are getting more refund requests
• There is a substantial increase in problems with your product or service

If this happens, you must realise that your product or service isn’t meeting their expectations anymore. There’s been a decline in quality or service. And, due to this your customers had a bad customer service experience and they are now frustrated.

What you can do? To manage such a situation, you should:

• Firstly, respond quickly. That’s because about 70% of customers say they will do business again with a company if their complaint is resolved quickly.
• Next, listen to their problems patiently and show them you care by addressing the issue directly.
• Lastly, offer them benefits so that they feel valued.

For example, say a customer complains about slow delivery. Now, you can offer them a free upgrade on their next order.

Always remember that a great recovery experience can actually make a customer more loyal than they were before!

3. More Requests for Changes

Say your customers keep asking for:

• Different pricing
• Contract changes
• Customised service

Now, this could mean that they are unhappy with your current offering. It might also mean their needs are changing, and if you don’t adjust, they could leave for someone who will.

Usually, this happens when:

• The customer has grown and needs more from you.
• They are looking for cost savings and might be considering a competitor.
• They are not fully satisfied with what they’re getting now.

To manage such a situation, train your support team to:

• Have a conversation: Don’t wait for them to leave. Ask why they need these changes.
• Be flexible: Offer different options that fit their new needs.
• Show your value: Makes them realise why your business is still the best choice.

Boost Your CLV, Stress-Free! Choose Atidiv Today.

Customer lifetime value helps you identify your most valuable customers. It improves retention and maximises long-term profitability. To do so, you should focus on:

• Customer experience
• Recurring sales
• Loyalty

Also, understand early warning signs (such as reduced spending, increased complaints, and requests for changes) to take proactive steps to retain customers before they leave.

Do you want to enhance your business’s customer lifetime value? We at Atidiv are expert digital CX solution providers. Through our omnichannel support, you can give your customers a seamless experience across multiple platforms. Also, our expert team continuously tracks customer interactions to identify pain points and refine processes.

Associate with Atidiv today! Strengthen customer relationships and reduce churn like never before!

FAQs On Customer Lifetime Value​

1. How can I increase my customer lifetime value without spending too much on marketing?

You don’t always need a big marketing budget! You can focus on customer retention by offering:

• Great service
• Personalised experiences
• Loyalty programs

Also, try to make small changes like better follow-ups, exclusive offers, and excellent customer support. This can increase repeat purchases and long-term loyalty. Alternatively, you can outsource customer support to a leading CX specialist, like Atidiv. 

2. What if my customers leave after just one or two purchases?

If customers don’t stick around, you should analyse why. Some common reasons are:

• Are they unhappy with the product?
• Is your follow-up weak? 
• Is your product/ service pricing not competitive? 

After identifying reasons, try to engage them with personalised offers and improved post-sale support. Even a simple discount on their next purchase or a check-in message can encourage repeat business and improve customer lifetime value.

3. Should I focus more on acquiring new customers or retaining old ones?

Retention is cheaper than acquisition! Studies show keeping existing customers is 5x cheaper than finding new ones. Thus, prioritise your existing loyal customers through:

• Exclusive perks
• Personalised communication
• Proactive service

4. How do I know if my CLV is too low?

Compare your CLV to customer acquisition cost (CAC). If it costs you more to get a customer than their lifetime value, your business is losing money. In such cases, you should look at trends:

• Are repeat sales dropping? 
• Are customers abandoning their online carts? 
• Is there a rise in customer complaints?

If yes, you should work on improving retention and engagement.

5. How can I stop my best customers from switching to competitors?

Be aware that most customers leave when they feel unappreciated or find a better offer. Thus, you should try to build strong relationships through:

• Personalised deals
• Priority support
• Value-added services (VAS)

Additionally, regularly check in and ask for feedback. If possible, offer incentives for long-term loyalty.