Customer Lifetime Value in Real Life

Customer lifetime value is the amount of money a customer is expected to spend on your business’s product(s)/ service(s). There are many ways to calculate this and most equations factor in the cost of acquisition, the retention rate of your consumer base and the profit on a per-customer basis. It’s helpful for businesses to calculate this so they can assess their profitability and notice customer behavior patterns.

Now think about it in real life: customer lifetime value is one of the several ways to know if you have a good relationship with your consumer. If your marketing team is effective, they’ll reach out to the customer in several key touchpoints to learn about their satisfaction with the product or service. They can resolve any qualms the customer may have, which can ultimately improve the experience and save your company from a bad review.

Or if your company functions like a QSR and has a high volume of customers that are hard to track individually and provide personalized experiences to, your marketing team can find ways to reach them with a segmented strategy and create buyer personas. Each type of customer has their own unique customer lifetime value and journey with your company. You might have customers that visit your establishment between 1 – 3 times a week for a quick meal. They can be a college student looking for a good deal, so they’re interested in a value menu. Your marketing team creates a campaign highlighting your amazing value menu and that helps those consumers return as well as retain new ones.

However, customer lifetime value is about more than the relationship with your consumer. Customer lifetime value reveals your customer’s satisfaction with the experience you’re providing. Those same students can stop coming if the wait times are too long during one of their few breaks or if their order is wrong several times. Acquiring many customers means nothing if you can’t retain them. If you have a low retention rate, it’s important to identify why. Ask yourself the following questions: What are my customer’s needs? Do I fulfill my customer’s needs? Who else is fulfilling my customer’s needs? Then, ask your customers how they’re feeling about your product/ service. Creating a survey and conducting your own research is a great way to gain valuable consumer insights.

Sriharsha Majety, CEO of India’s most popular food delivery service Swiggy, said it best: “We do our basic service really well. We are boringly predictable. Our hope is there should be no touchpoints between a customer and us beyond them placing the order on the app and us handing over the food to them. It is a challenging business and we were able to get the basic service right through a mix of technology and operational excellence.”

The consumer journey defines your customer lifetime value. If your acquisition strategies are successful, you won’t spend as much money because the right kind of consumers will be coming to you. If your consumers are pleased with your service, they’ll keep coming back and purchasing your goods.

And that’s just the ideal scenario. Many factors can affect customer lifetime value and it’s beyond a customer’s control, like the current Coronavirus pandemic and the looming financial crisis. Despite crises, a company must always center the customer’s needs and show them why they should keep coming back. Companies must be in touch with consumers at all times to ensure their messaging always fits their needs and situations. Learn from McDonald’s Brazil.

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