In marketing, customer lifetime value, customer satisfaction, or total sales value is an estimation of the net profits gained at the end of a sales transaction. This is also called the intrinsic value of the sale. Customer lifetime value is different than customer satisfaction. The former focuses more on perceived satisfaction of customers. It is derived from the action plan, assuming that all customers will remain customers over their entire lives. The latter is usually based on assumptions about churning rates.
To calculate all, we need to identify the characteristics of the customer relationship. We can use two of them: the customer lifetime value and the gross value. We will not discuss the first one here, because it depends on the nature of the customer relationship. If the customer is a perfect customer who purchases a product that they would have chosen if they were not customers, then we can say that the customer lifetime value is zero. On the other hand, if the product that they buy was not what they expected, then they might be satisfied with the transaction. Therefore, the gross value can also be negative.
On the other hand, the customer lifetime value is calculated using the gross value minus the discount rate to get the true value of the transaction. If we know that most of the customers will remain loyal to the company even after the purchase, then we can conclude that the service is good. If the customers are mostly dissatisfied with the service, then we can conclude that the product is not ideal.
So, now we have established that customer lifetime value is an important metric in marketing, what does it mean? It means that a company should focus on maximizing the number of satisfied customers. It is easy to calculate all. Just multiply the number of customers by the present discount rate for each customer and you get the true annual customer satisfaction.
So how do you make sure that your marketing efforts are focused on maximizing customer lifetime value? You need to understand why customer lifetime value is important and then make changes according to that. Most companies have their own formulas for determining the CLV. Some use ratios, while others use absolute retention rates. Here are some examples of these formulas:
There are many factors that can affect the value of your customers’ loyalty. However, the most important one is likely the pricing strategy. You need to be able to convince your customers that your product is worth the money. Therefore, a good pricing strategy is a great way to maximize the potential of your sales and increase your customer lifetime value.