What is a Good Customer Lifetime Value?

What is a good customer lifetime value (CLV) for a business? The truth is, there is no one size fits all answer to this question. A good CLV for your business will depend on many variables including the nature of your business.

The total revenue earned from a customer over the entire period of their relationship with your company is referred to as CLV. While this sounds self-explanatory and fairly straightforward, you may be wondering why it is important to understand CLV?

Read on to understand what a good customer lifetime value is and how this framework can benefit your business?

About Customer Lifetime Value

Every effort a business puts in marketing is about customer lifetime value. That is why it is crucial to know what a good customer lifetime value is? Let’s dissect customer lifetime value.

Customer lifetime value (CLV) is the revenue gained from a customer over the entire period of their relationship with your business. CLVs are often generated by the repeat purchases of an individual customer over time. CLV can also be generated through upsells/cross-sells to existing customers, or from the purchase of new customers from referrals by existing customers.

In simple terms, CLV is a marketing metric used to evaluate the potential profitability of a customer. Thus it is crucial to know what is a good customer lifetime value for your business so you will be able to understand what opportunities there are for your business to generate revenue from repeat sales from existing customers.

Then you can develop sound strategies to reel in new customers and build lasting relationships with the current customers.

CLV is an important consideration for business owners. If you are unable to correctly identify your customers and engage with them, then all of your customer acquisition efforts will go to waste.

Also, without CLV you will have no way to compare the performance of your sales channels. This is because each sale or referral channel is unique. Thus you need to have a tool that can help you compare the performance of your channels so you can determine which channel has the highest CLV, and from there you can allocate your resources accordingly.

How CLV Helps (Customer Lifetime Value)?

Now that you understand what is a good customer lifetime value let us look at how CLV (customer lifetime value) helps businesses.

Customer lifetime value is useful for determining your business’s spending on customer acquisition. It helps you compare the return that you are getting from your current referral channels.

It is crucial to have a good understanding of what is a good customer lifetime value in order for your business to be able to compare the return generated from different sales/lead generation channels and identify which channel is producing the best results.

Also, CLV can help you identify what you are doing right and what you can do to increase your CLV. For example, let’s say that there is a specific segment of customers who are buying from you without any help from your sales team. If you are able to track down these customers and identify what they have in common, you might be able to figure out what you can do to attract more customers like them.

What is a good customer lifetime value?

Generally, a good customer lifetime value should be able to cover your customer acquisition cost. It is a good range if you are able to achieve a CLV that falls between 3-5 times your cost of customer acquisition.

So, for example, if you are spending an average of $150 in acquiring a new customer, you should aim for a CLV of at least $450!

Many business owners aim to have a good customer lifetime value even if it means that they will not break even immediately. It is important to set your goal high. If you set it low then your efforts will not be worth it in the end.

What is Starbucks customer lifetime value?

Starbucks is a company that has been doing effective customer engagement since its inception. This is because they have a well-thought-out strategy for acquiring and maintaining customers.

What is Starbucks customer lifetime value? Starbucks clearly understands what is a good customer lifetime value is and has been able to achieve a CLV of $14,099.

They know that in order for them to grow their business they need to make sure that these customers are satisfied with the product and service they get from them.

What is Apple’s customer lifetime value?

Apple is another company that has managed to establish a very good customer base. It’s estimated that Apple iPhone customers are valued somewhere between $700-$900 every two years, which, over a 20-year time span, makes an iPhone customer worth $8,000, on average.

Customer Lifetime Value and PPC Campaigns:

Let’s have some eye on the following stats:

Can you tell which campaign appears to be performing better?

More purchases (revenue), lower CPC, and lower CPA. Seems pretty obvious.

But a question that’s worth asking is – what if campaign B focused on acquiring a better quality customer?  Someone who purchased a higher average amount bought more frequently, and stayed, is a customer of the brand for a longer period of time.

Ultimately, a customer with a higher LTV.  The question of which campaign is performing better looks a lot different when LTV is factored as a metric and could lead to very different marketing approaches.

So there are many factors to be considered when you analyze your campaign data. You cannot just only rely on clicks and conversions and cost. There are more to be noticed on daily basis. If your campaign goes out of budget, you will lose a handsome amount of money.

You need to adopt a smart tool for analyzing your campaign performance. The tool which has the power of AI and machine learning and that tool is PPC signal.

How to leverage PPC Signal to Grow your Customer Lifetime Value?

What is a good customer lifetime value got to do with my PPC campaigns you may ask yourself?

It is challenging for companies to improve the customer lifetime value of their business.

However, one way you can help reduce your cost of lead generation is by leveraging PPC Signal.

PPC Signal is a great platform that helps you manage your PPC campaigns. It helps you gain actionable insights from your campaigns which you can use to improve your campaign performance. This consequently helps in improving the CLV of your business.

One way PPC Signal achieves that is by helping you understand your conversion sources more clearly. This helps you optimize your campaigns to focus on the channels that are working.

For example, let’s say you are running a Google Ads campaign to generate leads for your business. However, you are not seeing any results. The solution is that you can use PPC signal to find out what you need to optimize for better Google Ads conversion rate.

Your conversions tells you how much revenue you can get from your campaigns, if you’re not getting enough conversions that’s mean you are not about to get desired revenue and that’s might be the reason that your customers are not loyal to you and your CLV value is not good, if you optimized your conversion data from the campaigns you are running then find the reasons and take actions to increase your CLV value.

Select the conversions from the metrics and you will get the automated signals on your screen that tells you how your conversions are going either up or down with respect to impressions, clicks, cost and much more and this is only possible through PPC Signal.

FAQs:

How do you calculate the lifetime value of LTV?

You sum up the total revenue generated by a customer and multiply it with the average customer lifespan, minus the cost of acquiring customers.

Is higher lifetime value better?

A higher CLV should lead to bigger profits. By keeping customers longer and building a business that encourages them to spend more, you should see the benefit show up on your bottom line.

Wrap Up:

Customer lifetime value is one of the most important metrics that you should be tracking if you are interested in seeing how your customer acquisition strategies are helping you. With this information, you are able to work on how you can improve your customer relationship.

If you are interested in getting more customers or improving your existing ones, get in touch with us today! We understand what Is a good customer lifetime value and we are more than happy to help you achieve that.