Each company wants to acquire excellent client services, which helps determine the primary client’s needs and improve the serving algorithms. There is a point of view that the permanent addition of new functions and services affects the conversion indicator. It’s true only if the old ones are provided elaborately considering customer lifetime value. Therefore, the CLV calculator is crucial in making business more competitive and getting additional strategic opportunities.
What is Customer Lifetime Value?
Such a vital parameter shows the objective benefit brought after cooperation with a specific client. Such a parameter is similar to other ones, such as:
- Cost for acquiring clients: it shows the price the brand pays for acquiring its audience.
- Retention factor: the parameter represents the percentage of people who cooperate with a company for a specific period and aren’t lost after several interactions
- Cost to serve: it shows how much it costs to serve one person considering all his inquiries and satisfying him.
A CLV calculator is necessary throughout the entire brand’s lifetime. It helps understand the primary benefit of each client and properly determine the budget both for marketing and services.
Why is Customer Lifetime Value Important?
Using the customer lifetime value calculator provides essential opportunities to improve the company's functions and optimize the specific services. The primary pros are the following:
- Measurement of the objective profit of marketing campaigns and possibilities to determine the most efficient attraction methods.
- Understanding the efficient ways to introduce additional business functions.
- Getting more target clients by improving the advertising campaigns and reaching better brand authority.
- Definition of long-term business aims to get a positive vision of the company’s structure in the future.
- Bottom-line optimization attracts the target audience and keeps the old ones connected with the brand.
When using a CLV calculator, it’s always essential to determine the primary goals of what should be firstly improved.
Customer Lifetime Value (CLV) Formula
The CLV formula for calculators is easy, and the indicator can be counted manually. The critical aspect is that the tool makes it automatic and avoids possible counting mistakes.
“CLV = Average money spent on operation * Number of purchases or transactions through a specific period * Time of the customer’s retention”
Each indicator in the calculator’s formula depends on the peculiarities of the company’s services and the type of its financial interactions. That’s why it’s crucial to consider different aspects when measuring the CLV with a calculator.
How to Calculate Customer Lifetime Value?
The marketers can analyze the specific business performance indicators and insert them into one of the following formulas:
- Typical CLV: “CLV = Profit expected after specific time of serving the client * Retention Coefficient/ (1 + Discount Indicator - Retention Coefficient)“.
- Predictive CLV: “CLV = Revenue for one customer per year * Time of the cooperation - Financial expenses for serving one client.”
- CLV for Individuals: *the same as the previous one* helps establish long-term cooperation.
Each formula is essential for online business and measuring the parameters with the automatic CLV calculator simplifies the procedure.
To Sum Up
Overall, the financial aspect is critical for each business, and that’s why modern companies should calculate CLV. But then, the only thing to do is plug all the necessary indicators in the formula and get important facts for the brand's improvement.