What is CLV (Customer Lifetime Value) and How is it Calculated?

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CLV or Customer Lifetime Value is one of the least popular and yet one of the most critical metrics in a contact center for providing great customer service. CLV is helpful for quantification of the total value provided by a customer to an organization.

Customer Lifetime Value or CLV can be used by the managers in a call center to go beyond providing service efficiency to how value can be added by extending the lifetime of a customer.

CLV is helpful for you to go beyond looking closely at how much per call costs to appreciating the financial benefits your business reaps by bringing down customer churn.

Thus, Customer Lifetime Value offers strategic merits for any customer-centric organization and attracting an increasing number of customers to discover that the most crucial asset in the organization is its customers and not its inventory.

Your competitors may find it easy to copy your services and products but if an organization knows how to create customer loyalty, it is less susceptible to attacks from its rivals. That is because loyalty is not something that can be easily changed.

A call center may have to measure various types of market and customer data. The section that follows shows the different benefits offered after measuring and using Customer Life time Value. Any organization that can calculate the CLV systematically can definitely reap a great deal of advantage.

  • CLV enables an organization to be capable of evaluating the profitability of different kinds of marketing strategies and that also include the effects of a variety of loyalty programs. Typically, the costs associated with a loyalty program are not that tough to calculate. Rather, it is tougher to do a prediction for income. When income and costs are combined for several years, you can get a clear idea of the Customer Lifetime Value either with a loyalty program or without it.

 

  • An exact figure can be provided by the CLV for the largest asset of an organization that is hardly even mentioned in its Annual Report.

 

  • Its calculations are helpful for the management to check the progress over a period of time and start intervening when events start going in an undesirable direction.

 

  • An organization is able to evaluate whether a customer database is really optimal or not by measuring its CLV. It is easy for the company to use CLV for classifying the various customer groups and other potential groups of customers using long-term profitability and also determine if the market strategy should be changed or not.

Defining CLV or Customer Lifetime Value

The easiest technique of expressing Customer Lifetime Value is the total profit or revenue that is generated by an individual customer over the entire time period while they are customers in your company.

Why is CLV so critical?

CLV or Customer Lifetime Value is all about driving the maximum possible customer profitability over the longest possible time period. In short, it signifies to keep your customers with you for a longer time so that their overall churn is reduced. Measuring CLV will definitely make sure that your business is streamlined in all the organization’s departments from improving the business processes to lowering the customer acquisition cost to improving scores for customer satisfaction.

Formula for calculating Customer Lifetime Value

The value for Customer Lifetime Value may be calculated in the following manner.

Customer Lifetime Value- No. of Years the said customer will stay with your organization * Annual Value for each customer.

You can express a call center’s Customer Lifetime Value in 2 different ways: They are Customer Lifetime Value (profit) and Customer Lifetime Value (revenue).

Both these two methods of calculating CLV are equally permissible. Some organization regard CLV as revenue and other regard CLV as profit. It depends solely on the organization.

Customer Lifetime Value (Profit)

It is calculated by multiplying the Annual Profit per Customer with Number of Years the customer stays with the organization.

Customer Lifetime Value (Revenue)

CLV is calculated in this case as the product of number of years for which a customer is associated with a company and Annual Revenue per Customer.

CLV or Customer Lifetime Value is indeed an effective metric in a business. This metric gives you a scientific perspective of cost incurred in customer service. It will support your business by concentrating on the opportunities that are generated due to excellent customer service, that is, to extend the customer lifetime instead of focusing only on efficiency and making an attempt to save just 5 percent of a call cost.

Those call centers who are already familiar about this new process and used the metric frequently know that it is much simpler for demonstrating the importance of great customer service and also find it much simpler to make notes on interesting business cases.