Introduction to Customer Lifetime Value (CLV)

Introduction to Customer Lifetime Value (CLV)

Customer lifetime value measures how much, on average, each customer is worth to your store now and over the next 3 years.

Why is customer lifetime value important?

For retailers, it's one of the most critical measures of success. It's a customer-centric measure that can help you make important business decisions and create marketing strategies to keep valuable customers and increase revenue from less valuable customers.

How is customer lifetime value calculated?

Your customer lifetime value is calculated using 2 factors, based on the 12 months leading up to the end date you've selected in the date range:

• Order value (previously Average purchase value)
• Orders per customer (previously Average purchase frequency)

These two figures are then multiplied by 3, an assumption of a customer's lifetime, to project their value into the future.

🤖 Customer lifetime value = Orders per customer × Order value × 3

The great news is that Marsello calculates this for you. In your Marsello admin, go to Analytics > Business performance, you'll see the Customer lifetime value of your customer database.

Term definitions:

• Order value (previously Average purchase value): The average amount a customer spends per order, based on the past 12 months. Order value = Total sales ($) ÷ Total order count.
• Orders per customer (previously Average purchase frequency): The average number of orders placed per customer, based on the past 12 months. Orders per customer = Total order count ÷ Number of purchasing customers.
• × 3: A fixed multiplier representing a customer's projected lifetime. Customer lifetime value combines a customer's recent 12-month behavior with this multiplier to predict how much they're worth to your store over the next 3 years. Order value includes guest (unattached) customers; Orders per customer excludes them.

Improve customer lifetime value with Marsello

Here are a few ways in which Marsello's features can help improve your customer lifetime value:

Increase order value

• The Product Recommendation Block can be added to any of the email automations. This automatically pulls through products that your customers will most likely buy next.

• The Reward Your Best Customer Automation encourages your best customers to spend more by sending exclusive emails just for them.

Increase order frequency

• Loyalty Program: encourage customers to keep shopping with you by automatically rewarding loyalty points for spending, product reviews, sharing on social media, and more, that customers can use towards exclusive rewards.

• The Thank First-Time Customers Automation helps make a great first impression and bring first-time shoppers back a second time.

• The Win-Back Automation will help bring your customers back who haven’t shopped in a while.

Increase customer retention

• Feedback automatically asks customers to rate their experience to measure their satisfaction, helping improve your customers' experience so they keep shopping with you.

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