Why CLV is Important

Jun 30, 2020

Whenever you are into business, there are several concepts that you have to keep in mind all the time. These concepts are very crucial as they assist you in having a very good idea of how your business is faring. One such business concept is the parameter called the customer lifetime value.

Also referred to as CLTV, CLV, lifetime value (LTV), or even lifetime customer value (LCV), CLV is best described as a prediction of the net profit that can be linked to the complete relationship you have with a customer in future.

The definition of CLV can be said to mean the financial value of the relationship you have built with a client, dependent on the current value of the cash flows expected in the future as a result of the relationship you have built with the customer in question.

The Calculation of CLV

Just as it is with some other business parameters, there is also a formula for the calculation of CLV and it is as follows:

Customer Lifetime Value = Margin . Retention Rate/1+Discount Rate – Retention Rate

However, kindly note that this applies as long as the retention rates and margins are constant.

Impact of CLV on Your Business

As hinted in the sections above, CLV is very important as a parameter for assessing the overall assessment of your business. As a measure, the customer lifetime value helps enterprises to redirect their focus and concentration on short-term profits into building solid, productive, and long-term relationships with their clients. This way, you are not going to focus on ‘affordable’ customers on the short-term but clients that will eventually provide high value over time.

However, helping the businesses redirect their focus on a permanent relationship with the clients is not the only important thing to CLV. So, yes, while CLV helps you in the management of relationships with customers as an asset, there are other applications for it too. It is also good as a metric that helps you know when you have got to the upper limit of your expenses relating to getting new customers.

With the CLV, it is also possible for you to assess and properly tract the impact of strategies of marketing that you are employing. The same thing applies to know the level of optimal investments when it comes to sales campaigns and marketing efforts. The allocation of resources in the most effective ways possible concerning marketing efforts, so you can get the highest level of returns, is another way by which CLV is applied.

Working with Clarobi

As you must have noticed by now, there are several applications and benefits of CLV. They are so numerous that not all business owners know how to go about them. Some do not even know how to do the calculation.

Well, the good news is that Clarobi is always on hand to help you fix everything relating to your CLV. With an ultramodern platform and an array of excellent tools alongside the best services in the industry, you can be sure of getting nothing but the very best when doing business with Clarobi.