Understanding customer lifetime value
There are very few people in this world who understands customer needs and values.
Out of 100%, only 0.8% of people understands customers values and needs for their individual product requirements and services.
The richest person alive on planet quotes
"I have made a successful Business plan because I valued my customer's feedback and their experience regarding products and services."
Every previous product buyer has a 50% chance of coming back seeking for other products and services. In INDIA, A survey took place regarding the customer value experience compared to the USA. Most of the customers experienced rude behaviour and false information regarding the products and services they are seeking from the market. Whereas, The USA topped in customer satisfaction experience for the products & services they buy from the Individual Store owner.
Once you start getting customers, you'll want to focus on CLV, or customer lifetime value. The CLV is an estimate for how much revenue you'll be able to make from each customer.
To have a profitable business, you want to lower your cost of acquisition and increase your customer lifetime value. So if your cost of acquisition is higher than your customer lifetime value, you'll eventually go out of business. So make sure to keep the acquisition costs low and the lifetime value high. Some store owners, when they're planning a new e-commerce venture, will look at the acquisition costs and determine if they can have a high enough lifetime value to make the business work.
Here are a few suggestions about keeping your business and CLV on track...
To find this target CLV number,
We first need to start with our acquisition cost. The cost of acquisition is calculated by multiplying the cost per visit by your conversion rate. Let's say you're selling a chocolate-flavored protein bar, and you've decided that advertising is the best way to get your business moving. If you pay 0.75INR per click and you have a 20% conversion rate, that means one out of five people that click that ad actually go through the checkout process. Your acquisition cost in this case is 5$. That means for you to just break even you need 5$ profit per order. And that might challenging if you're selling protein bars. Let's say for right now our cost of acquisition is 5$ and our profit per order is $2. At this rate we're going to lose a lot of money very quickly. This is where increasing the customer lifetime value becomes important. Each industry is going to be very different in terms of how they increase the CLV, but there are several good strategies that you can employ. By offering a variety pack of protein bars, you might convince customers to buy more product. This could change your CLV from two to, let's say, eight. You can send out newsletters reminding existing customers to come back. If you have a 25% conversion rate on your newsletter, you've just increased your CLV from $8 to $12. And while the customer is browsing the store, you could entice them with related products like mineral water or supplements. Even a small conversion rate on a $30 supplement would raise the CLV yet again. These are very simplistic numbers that I'm showing you, but they demonstrate the premise behind raising the customer lifetime value. And knowing your customer lifetime value means you know the maximum you can ever pay for customer acquisition. If the costs get too high in one channel, you mathematically know that you have to explore a new channel to try to find lower costs. Well, these are some basics to find out the importance of the CLV and keeping your business on track with a regular profit margin. Hope this will help for the people who are losing business and can't figure out why they are loosing so. To know more and get expert tips and suggestions for growing your business subscribe our Blog Post to get more Helpful posts which will give insights on your overall business model.