Customer lifetime value, also known as CLV is the total value of a customer to a business over the entirety of their relationship. This metric, help companies know how much “value”, a customer will bring and it will also help them understand for how long they will want to keep a relationship with that customer so at least there is a break even.
Now for the sake of an exercise, we will use the brand Nespresso. Nespresso is a brand that is perceived as high end, their target audience is male and female with an income of 40K + between the ages of 30 and 49. Each of the pods cost £0.31 so now will calculate the CLV.
We are going to assume the customer stays with Nespresso from his 30 to their 49 years of age. This means they will stay for 19 years consuming Nespresso. People also drink coffee at least once a day, every day. In other words, 7 times in a week people will drink coffee. Calculation will go like this: 52(7*0,31*)19
CLV: 2143,96. Nespresso shouldn’t spend more than £2.143,96 on acquiring its customers because otherwise, they would be losing money.
But what does this really mean? what influences the CLV in an organization? How can companies improve their CLV? I believe CLV should not be taken as a financial metric because it tells more than that. This metric shouldn’t be analysed as how much money should I spent in a customer but it should be seen as an opportunity to provide good customer service; innovate so customers come back and last longer. The reason Nespresso is a popular brand is that it innovated the way people use to drink their coffee and it continues to innovate by offering a variety of flavours to coffee lovers. Overall CLV is a call to attention for organizations. If you rely on CLV just as a financial metric you miss the most important part of it, the customer.
If you want to find out more about how to calculate CLV, check this post by Kissmetrics