If you don’t have a system of record yet, don’t worry - you can still calculate CLV using the formula above, and pulling data from various systems like your CRM, sales records etc.įree eBook: The ultimate guide to improving customer loyalty Calculating the CLV of individual customers The data in the directory feeds directly into your CX program so you can automatically see a real-time breakdown of your key CX metrics, including CLV, by customer segment. It’s easiest to do if you have a single system of record for all your customer interactions, such as the XM Directory. So you’ll need to filter average purchase value, average purchase frequency, and average customer lifespan by that segment. Once you have your segments, follow the same formula for customer segmentation above, but this time only inputting the data for each segment. what they spend, how often, and what they spend it on) rather than what they say they’ll do. This way, you have a true picture of what a group of customers does in the real world (e.g.
We’d suggest using dynamic customer segmentation that builds your segments based on real-life behavior rather than broad demographics. Segmentation is where you break your customers up into distinct groups based on their behavior or demographics to identify commonalities between individual customers. To calculate CLV by customer segment, first you’ll need a breakdown of your different customer segments. identify actions that will make increase CLV with segments who currently spend less over their lifetime)
the average CLV across all your customers), a customer segment level (the CLV of distinct groups within your customer base) or an individual level (the CLV of each individual customer you deal with). It’s also useful in building customer loyalty prediction models, particularly in organizations that have a multi-year relationship with their customers, as a drop in CLV can be an early sign of attrition.įree eBook: The ultimate guide to improving customer loyalty What you’ll need to calculate customer lifetime valueĬLV can be calculated at a company level (i.e. While CLV measures a tangible impact on revenue, NPS and CSAT measure a future promise of loyalty.īy calculating CLV, you’ll know how much it’s worth investing in the customer experience in order to see a positive ROI.
It shows how much a customer is worth to you over the lifetime of their relationship with the company and it’s a useful CX metric because it’s directly tied to the bottom line.Ĭompare that to Net Promoter Score (NPS) or Customer Satisfaction (CSAT) - both often used to measure customer loyalty. While there’s nothing wrong with that, it’s littered with nuance - what about the existing customers that cost you more to serve than they contribute to revenue? Which customers or segments are worth investing more in?ĬLV is how you answer those questions. We all know the old adage - it costs less to retain an existing customer than it does to retain a new one.
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