what is customer lifetime value (clv)


For entrepreneurs and business leaders, remaining innovative and relevant is often top of mind for them, and for good reason. In the competitive landscape of business, understanding and catering to the unique preferences and behaviors of customers is not just an advantage—it’s a necessity. One of the most effective frameworks for achieving this is through the strategic segmentation of your customer base, using Customer Lifetime Value (CLV) as a guiding metric. 

Today we’ll dive into how you can leverage CLV to segment your customer base and personalize your marketing efforts, service/product development, and customer service to optimize the value delivered to each segment. (Because when you focus on these things, the profits naturally come.) 

What is Customer Lifetime Value (CLV)?

Customer Lifetime Value (CLV) is a metric that estimates the total revenue a business can reasonably expect from a single customer throughout their relationship with the company. It helps businesses identify the most valuable customers and understand how different customer segments contribute to their overall profitability. But if you’ve been following me for awhile, you know I’ve turned CLV on its head. I invite you to think of CLV through a new lens. One in which you measure how valuable the business is to a customer throughout the entire relationship. 

Why CLV Matters

Resource Allocation: By understanding what customers want, you can allocate your resources more effectively, focusing your efforts where they are most likely to yield a high return on investment.

Strategic Decision-Making: When you know your CLV you can make strategic decisions on where to invest in marketing, sales, product/offer development, and customer service.

Personalization and Retention: Knowing your CLV helps in tailoring interactions and offerings to retain valuable customers and potentially increase their lifetime value. (Key if you have your sights set on scaling one day.)

Segmenting Your Customer Base Using CLV

Segmentation allows you to divide your customer base into groups based on shared characteristics. When segmentation is based on CLV, you can categorize customers into segments such as high, medium, and low-engagement customers. Then you can allocate your resources (Team and Revenue) based on customer profile. Here’s how to approach segmentation:

Data Collection and Analysis: Gather data on customer purchase history, engagement, feedback, and other relevant metrics to calculate CLV.

Segmentation Criteria: Define criteria for segmentation based on CLV. For example, customers might be categorized into tiers (e.g., top 20% high-value, middle 50%, and bottom 30%).

Profile Development: Develop detailed profiles for each segment, understanding their behaviors, preferences, and needs. Doing this will inform your marketing, sales system, and customer experience. 

Tailoring Marketing Efforts

Once segments are created, you can tailor your marketing strategies to resonate with each group’s unique characteristics and needs.

High-Engagement Customers

Exclusive Offers: Provide premium offers, early access to products, or exclusive services to recognize and reward their loyalty.

Personalized Communication: Use data to personalize communications, acknowledging their preferences and past interactions with the brand.

Medium-Engagement Customers

Upsell and Cross-sell: Identify opportunities to introduce these customers to higher-tier products or complementary services.

Engagement Campaigns: Run targeted campaigns to increase their engagement and move them up to the high-value segment.

Low-Engagement Customers

Feedback and Improvement: Understand the reasons behind their low CLV and address these issues.

Tailored Incentives: Offer incentives that encourage increased engagement or purchasing.

Enhancing Product Development

CLV-based segmentation also informs product/service development, guiding you in creating or modifying offers to meet the specific needs of different customer segments.

High-Engagement Customer Insights: Use insights from highly engaged customers to guide premium offer development or enhancements.

Segment-Specific Features: Develop features or products tailored to the needs and preferences of each segment, increasing relevance and appeal.

Optimizing Customer Service

Personalizing customer service based on CLV segmentation ensures that efforts are aligned with providing strategic support based on customer engagement metrics. 

Prioritized Support: Offer prioritized or dedicated support to highly engaged customers to enhance their experience and loyalty.

Segment-Specific Service Strategies: Develop service strategies that address the unique needs and expectations of each segment, improving satisfaction, engagement, and retention.

Implementing Technology for Personalization

To effectively segment and personalize at scale, you need to leverage technology. Improving your operations via task automation allows you to “buy back time” and remain focused on the most important aspect of your business: the PEOPLE (Customer and Team). 

CRM Systems: Use Customer Relationship Management (CRM) systems to track customer interactions, preferences, and history.

Analytics and AI: Employ analytics and AI to analyze customer data, predict behaviors, and automate personalized experiences. Remember, AI is here to stay, and you should learn all you can about how AI can improve the operations of your business. But it shouldn’t replace the humanness in your business. It should be used to collect and analyze data, improve customer experience, improve operational efficiency, and improve personalization. 

Understanding Your Consumer in 2024 

The role of technology: AI is here to stay. It will have its place, but it should not replace YOU and the individuals in your organization. Humans still want to connect with Humans. Leverage this fact in 2024. 

Data-driven decision making: Consumers have access to more information and data than ever, and they are using it to make educated and informed decisions about the businesses they choose to partner with. Consumers are buying from businesses that align with their core values. How are you demonstrating your core values in your marketing?

Experience is the new currency: Customer experience is the new marketing. And the experiences relating to your product/service and interactions with your brand will be key in building trust with your customers. From the first point of contact, how are you dialed in on your consumer’s needs, wants, and desires. And what are you doing to deliver on your brand promised efficiently and effectively?

Applying Customer Lifetime Value (CLV) to Your Business

By effectively segmenting your customer base using CLV, you can not only enhance your understanding of different customer segments but also tailor your marketing, product/service development, and customer service strategies to meet the specific needs and maximize the value of each segment. 

This strategic approach leads to more efficient resource allocation, higher customer satisfaction, and ultimately, increased profitability and growth.

Embracing CLV-based segmentation and personalization is not just about improving numbers; it’s about fostering a deeper, more meaningful relationship with customers, which is the cornerstone of sustainable business success in today’s customer-centric world.

If you need accountability applying CLV to your business, book a complimentary call with me – Kim Breiland, Business Growth Strategist. I will help you get the right systems in place to build strong, lasting relationships with your customers. 

What is Customer Lifetime Value (CLV)?

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