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How to Calculate Customer Lifetime Value and Improve Customer Retention



Is it possible to determine how much it costs a company to retain or keep a valuable customer base? Can you calculate a person's lifetime value, also known as profitability, the financial value of a customer?


Understanding the customer's life cycle and the various needs they will have as they grow and develop is vital to a customer relationship. As the customer grows in age, their needs will change, the interests they possess will change, and the reasons they use to purchase something will change. It is for this reason that the company that keeps the customer will always have a need to service this need continually.


While this "why did they buy this and not that" mentality may be a bit far-fetched, there is a data-driven approach that can be taken to put a number on the cost of retaining a customer. Every other aspect of the relationship needs to be considered, but with the right data and the right time, understanding the customer's needs will help you know how they make your business their product.


Customer retention is all about substance. You will want to think about every aspect of the customer and the services they use to buy products and services. You will want to track the inventory of products, whether or not the company offers free or discounted samples, and what incentives are available to the customer to encourage a repeat business relationship. Once you have all of this information, you will be able to compare the different ways you are doing things, and the benefits of each - the way you are doing them will be reflected in the data that you will obtain at a later time.


If the customer is loyal to the Brand, they will continue to stay faithful to the company. On the flip side, if the customer does not feel that they need or require what the company offers, the relationship will never be effective. You will always have a customer that feels compelled to buy something, and this is the way to measure the cost of retention.


The old saying of "the customer is always right" can be easily applied to businesses, especially those in the retail and service industry. Everyone wants to feel like they are being treated well. To help keep your business viable, you need to be able to recognize customer loyalty, and this means knowing what the customer is looking for. Let the customer feel valued, and you will retain their loyalty – they will know your business cares about them.


Knowing the ways you are doing things, including increasing customer satisfaction, will help in this pursuit. Retention metrics can be the key differentiator between a company succeeding or failing. You want to make sure you understand the concept behind retention as soon as possible so you can spend your time and money wisely and get the most from it. The learning curve can be very steep and confusing at times but is worth the effort because it will help you make the right decisions for your business – helping you think more strategically when looking at different retention strategies.


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