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CRM and Sales

Customer lifetime value – how to calculate, track, & increase

Bani Kaur 6 min read
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When inflation is high, it’s important to double down on the customers you already have — both for retention and upselling. For new customers, you need to introduce higher-value offers, but that doesn’t necessarily mean you should target higher recurring revenue. Instead, you can focus your efforts on strategies to increase customer lifetime value (CLV).

In this blog, we’ll cover customer lifetime value basics — what it is, how you can boost it, benefits, and more. We’ll also show you how an intuitive customer relationship management software can play a role.

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What is customer lifetime value (CLV)?

Customer lifetime value (CLV, or CLTV) is the total revenue a business can expect from a single customer account.

For example, a customer for a service-based business might sign up for a $50/month plan and continue using it for two years. In this case, their CLV would be $1200.

For an e-commerce company, let’s say a customer makes a first-time purchase for $50 and continues making purchases over 10 years, averaging $250 a year. This customer would have a CLV of $2500.

Tracking CLV during any period is important for businesses, but during an economic downturn, it can give them an extra metric for prioritizing high-value customers and optimizing resources to maximize profitability and long-term success.

What are the factors that affect CLV?

Like most sales and marketing metrics, you can’t look at just one factor when monitoring changes in another. Here are four factors that could impact your customer’s lifetime value:

  • Customer behavior: relates to purchasing frequency, average order value, and the category of services customers buy
  • Customer satisfaction: connection between satisfaction and repeat purchases or referrals
  • Economic factors: such as inflation or changes in customer preferences
  • Competition: risk of customers switching to competitors offering similar products

4 benefits to tracking customer lifetime value

Tracking your CLV is mission-critical to building an organization that tracks, builds, and sustains growth. Here are four immediate benefits of tracking your CLV:  

  1. Knowing your CLV can help you increase revenue

    As we saw earlier in the formula, CLV and revenue are directly proportional. When you use your customer lifetime value as a starting point, you can take important audits of the sales and marketing activities in place that are contributing — or not — to more purchases, increased loyalty, and referrals from your customers. As a result, you can hopefully reduce churn and increase customer retention.

  2. It helps you identify hero customers

    Identifying your most valuable customers is a goldmine.

    It can help you prioritize your marketing efforts to target exact ICPs (Ideal Customer Profiles), develop targeted retention strategies, and optimize your pricing and promotions to maximize revenue.

  3. Knowing your CLV can help you reduce acquisition costs

    The insights you get from customer lifetime value can help you improve your product and service to increase customer satisfaction and the likelidhood that customers will generate referrals. This could lower your acquisition costs considerably, because having a roster of high CLV customers can make it easier to plan resource-spend more efficiently.

    grid dashboard

  4. Tracking your CLV can help identify your best products

    By analyzing which products and services are driving high CLV customers, you can get an industry perspective on your business. You can use it to:

    • Ask why are customers gravitating toward this product
    • Understand how to use customer insights to build new sales and marketing strategies
    • Inform product development efforts

You can organize these insights on monday sales CRM.

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3 tips for increasing CLV

  1. Gamified loyalty programs

    Customers today have fleeting attention spans. They’re tired of being notified about rewards they can’t measure or evaluate. By using gamified rewards and loyalty programs you engage your customers visually and keep them coming back.

  2. Relationships on non-transactional platforms

    Everyone offers a chatbot on their checkout pages, but what about relationship-focused platforms? Very few brands put in the extra effort to engage with customers where they spend time more often — and more naturally — social media and SMS.

    Engage with your customers on social media and offer prompt customer service on their preferred channels to build loyalty.

  3. Personalization at multiple levels

    Most companies highly personalize marketing but drop the ball during delivery. This impacts customer retention and CLV. By tailoring your marketing messages, product recommendations, and service interactions to each customer’s unique needs and preferences, you can build a stronger relationship and increase customer loyalty.

Track your CLV with monday sales CRM

You can organize and analyze all your customer and lead-related metric data on monday sales CRM. With everything in one place, you can gain insights and make data-driven decisions for winning strategies. Here’s a few features you’ll love:

  • Customer status tracking: Get insights into which customers are still in the negotiation stage, deals won, and estimated revenue.
  • Centralized communication: Integrate with your email so you can promptly contact and support the customers who need help.
  • Collect leads: You can create forms to suit your specific data-capturing needs. These forms store all responses in one central location so you can find patterns in your data to create customized campaigns.
  • Dashboards, views, and reporting: Choose from 25+ views, including Dashboard View to create a 360-degree picture of your customer interactions, sales, and more.
  • Sales forecasting: Set the deal value and close probability, then leverage reports to track forecast vs. actual sales. You can drill down on different forecasts by different time periods(months/weeks/year). This gives you more information about which sales rep is delivering the most CLV.

Check customizable reporting dashboards to stay on track and reach your goals.

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Frequently asked questions

What is the lifetime value of a customer?

CLV is the expected total amount of money a customer will spend on your products or business during the lifetime of an average business relationship.

How do you calculate customer lifetime value?

Multiply your customers’ average purchase value by their average purchase frequency and average customer lifespan.

Why is customer lifetime value important?

The benefit of customer lifetime value is that it serves as a benchmark for how you approach each customer interaction. This in theory should result in better quality customer service, satisfaction, and a longer purchase relationship.

Try monday sales CRM to manage your customer data for boosted CLV

Using a dedicated and flexible CRM like monday sales CRM is invaluable because it can provide a holistic view of your customers across sales, marketing, and customer success for insights that could result in a huge impact. You can build a custom workspace to monitor everything from customer purchase history and frequency to transitions in customer behavior and how they might be related to strategic activity.

Having one source of truth for managing customer relationship and customer-focused initiatives that are updated in real-time is an important first step toward understanding your CLV, and it also serves as a consistent measure of the success of your efforts.

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