Sometimes Brisbane businesses are unclear about how much they should spend on marketing, so it’s crucial to consider your marketing investment in terms of customer lifetime value. You can then see how much payoff the investment produces throughout your relationship with a customer.

Understanding customer lifetime value allows you to see how valuable a customer is to your Brisbane business. When you retain clients and build a loyal customer base, it’s easier to sell your product or service to them. So, you can get a higher return on your marketing investment when you retain customers.

Therefore, you should consider your investment in marketing not only in terms of getting new customers but also in terms of retaining customers. The best marketing strategies attract new customers and focus on customer retention.

Account for customer lifetime value when considering your marketing investment, therefore.

What is Customer Lifetime Value?

Customer lifetime value (CLV) measures the total revenue your Brisbane business can expect to generate from a single customer throughout the overall relationship with that customer. So, customer lifetime value gives you the amount of money you anticipate a customer to spend in your business for as long as they use your product or service.

Therefore, customer lifetime value increases when a customer stays with your business longer.

Rather than thinking of a customer’s one-off purchase, customer lifetime value measures how valuable a customer is to your business over time. And you should consider your marketing investment in those terms because that investment directly relates to customer lifetime value.

A successful marketing strategy focuses on your existing customers and gives them value. So, not only are they benefiting from your products or services, but they are interacting with your business through your marketing efforts – blogs, social media, etc. – which also offers your customers value.

When you help customers on more fronts, you increase the likelihood of retaining them. Thus, you potentially expand the customer lifetime value for your Brisbane business.

So, your marketing investment and customer lifetime value are directly linked. You must consider your marketing investment in these terms instead of in terms of a one-off purchase.

Calculate Customer Lifetime Value

To calculate customer lifetime value, you take the average amount your customer spends and multiply that by how many times they spend it. You can do this with existing data on your customer’s spending habits.

Let’s look at a quick example of a hair salon to see this in action.

The business owner has gathered data and knows spending averages $350 per customer, and customers return to the salon six times per year. When we multiply the average spending with the number of times they spend it, we get $2100.

Now, let’s just say these customers only use the services for one year, so the business has retained them for one year. Their customer lifetime value is $2100 in that case.

But remember, the longer the customer stays with a business, the higher their customer lifetime value becomes. If the business retains customers for five years on average, that number rises to $10,500.

Customer Lifetime Value and Your Marketing Investment

Customer lifetime value allows you to measure the impact of your marketing investment. When you consider your marketing in terms of the customer’s entire relationship with your business, you can see how effective your marketing spending is.

Before you measure customer lifetime value, you might only view your marketing investment in terms of a customer’s one-off spending. Let’s go back to our example to explain why this isn’t the best way to think about it.

So, the business owner knows customers spend $350 on average, while marketing costs $100 per customer. The marketing looks ineffective because the return on investment seems low.

However, that changes when we consider marketing spending in terms of customer lifetime value. It actually costs $100 in marketing for a customer worth $2100 to the business over time, a much higher return on investment.

For every dollar spent on marketing, the owner gets a return of $21. Considering the customer lifetime value gives us a clearer picture of how well a marketing strategy works for your Brisbane business.

Advantages of Customer Lifetime Value

Understanding customer lifetime value gives you certain advantages.

1. You can measure the financial impact of marketing campaigns, promotions, and other activities.

2. That helps your business align its focus and reach higher financial targets, or you can create these targets if you’re a smaller business.

3. Understanding customer lifetime value can shift your strategy to concentrate marketing efforts on retention through initiatives like loyalty programs or to target underutilised areas.

4. You can balance long-term and short-term marketing goals and better understand your ROI.

5. CLV allows you to identify and target high-value customers with your marketing strategy.

6. You can manage customer relationships more effectively. For instance, you can foster tighter relationships with the type of customers who spend more time (and money) with your business.

These advantages give you an idea of how understanding customer lifetime value can help your business. Not only can it benefit your marketing strategy, but it can also help you retain customers.

The Importance of Customer Lifetime Value

Customer lifetime value is important in four ways. It can:

Positively Impact Revenue Over Time

Your business earns more money when a customer has a long lifecycle. Also, the more value the customer brings during the relationship, the more your business earns.

So, by tracking and improving CLV, you can increase revenue.

With CLV, you can pinpoint the customers who spend the most money on your business. Then, you can target these customers with the products and services they like, which keeps them happy and encourages them to spend more.

Help You Identify Issues

Reviewing CLV can help you identify any issues your business experiences. If you see that your CLV is low, you can address the problem.

There will be a reason behind your low customer retention. Maybe your business could work on improving customer service or building stronger bonds with customers.

To address the former issue, you could work on your customer support. And you could action promotional campaigns or loyalty programs to address the latter problem.

No matter the issue, at least you can identify a problem using CLV.

Help You Target Your Ideal Customer

Knowing the lifetime value of a customer means knowing how much they spend on your business over time. You can use the knowledge of this customer to build a profile of your ideal customer.

Understanding your ideal customer allows you to target a specific audience. You can target people who are likely to spend money on your business.

Help Reduce Customer Acquisition Costs

Customer acquisition can be costly. Getting new customers is five times more expensive than keeping existing customers.

Not only does retaining customers cost less, but it can lead to a rise in profits. These customers trust your business and tend to buy more from you over time.

Therefore, it’s critical to identify these customers and keep them happy. CLV allows you to identify these customers and helps you create strategies to retain them.

When you nurture these relationships and keep customers content, you increase CLV and your profits while reducing customer acquisition costs.

Conclusion

Now you can see why customer lifetime value matters to your marketing investment. You can use CLV to see how effective your marketing spending is.

Also, understanding CLV gives you more advantages when running your Brisbane business. You can identify and target high-value customers while fostering customer relationships.

Furthermore, CLV can positively impact your revenue over time. You can identify any issues and retains more customers, allowing you to reduce acquisition costs.