CLV enables you to know at which point customers become profitable, which is key to successful marketing and retention programmes, sales targeting, financial forecasts and other strategic concerns. Getting a handle on CLV helps identify the additional investment required to drive marketing campaigns, retain customers, support sales account management and optimize customer service.

To fully assess CLV for customers and then segment them, it is important to employ tools that help you identify and track different types of customers. Using a Customer Relationship Management (CRM) solution can be essential in ensuring that you organize customer information, metrics and other indicators, so that you can effectively profile and segment customers and assess CLV.

There are several different models you can use to calculate your CLV. The best model depends on your type of business and industry. If you need a place to start, then I recommend the following "simplistic" model:

Divide the total amount of marketing dollars by the amount of actual customers that come from those efforts. (Marketing Spend / Customers = Cost Per Customer)

A little better way to measure CLV is:

(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years)

But this is still a bit misleading as averages lie. You need to look at CLV based on your customer segments and analyze this data to find correlations between the members who stay and those who churn quickly.

Finding the lifetime value of these individual customer segments will give you a very clear idea about the value each type of customer will bring to your business. Once you know that, you can make data driven decisions about how much to invest in acquiring each customer type.

There are specific steps you can take to retain customers fitting the right profiles

Segment your data and create a retention plan – With the CLV analysis completed, segment your data according to customer worth. It is important to create a separate retention strategy for each segment, according to the projected value. For example, key accounts and potential key accounts may receive a free customer magazine and quarterly sales visits to ensure they are happy, while less profitable customers would receive an online version of the magazine and phone follow-up – which cuts costs in accordance with the return

Send the right communications – A relationship can be tainted from the very beginning if you don’t offer communications to customers that are relevant and anticipated. Use marketing automation software to trigger communications based on customer behaviour – this is considered one of the most impactful ways to grow a fruitful relationship with customers and is completely automatable

Streamline processes – If your employees are manually undertaking tasks like call logging or saving emails, then productivity is limited. Simply implement the right CRM software, which will happily record and track such data automatically and subscribe customers to specific campaigns with a few clicks. Being efficient will impress your customers and free up time for more qualitative interactions that help build a stronger relationship

Get varied with media – Today there is a consumer expectation that companies should interact across a range of media, especially digital channels. Social media is becoming increasingly important, with every smart company having some sort of customer-specific presence on social media channels. Proactively handling customer service via a social media management tool integrated into your CRM system can help you to resolve issues more quickly – you are able to get to the information you need to see faster

Instill loyalty – Successful customer retention begins from the first point of contact and continues throughout the relationship. Continually exceeding customer expectations will help gain loyal advocates and in the digital world, a happy customer can spread the word to hundreds if not thousands and in certain magical instances, millions of prospects. Personalized messages that are right on target, addressing needs and reflecting preferences, help companies build strong bonds with customers and help nurture new relationships

Show you care – Taking customers’ thoughts and feedback on product ideas into consideration can go a long way to making them happier, as they feel part of the brand’s journey. Setting up a Facebook or LinkedIn Group for customers is simple and easy to manage and can be a great source of upsell and cross-sell opportunities

Empower service reps – By centralizing your entire service team's knowledge into one accessible hub of past product issues and allowing reps to customize their own filterable history feeds, you can rapidly increase the speed at which customer issues resolved. Using the right CRM, you can set up new cases for on-the-move reps within their area, to increase their productivity and escalate support issues to the right person wherever they are.

Companies that implement these steps do more than just provide a good service: they are creating an overall positive customer experience. Although ‘customer service’ and ‘customer experience’ may seem to be the same thing, they are not. While customer service is the delivery of service to customers before, during and after a purchase, customer experience is the sum of all involvement a customer has had over the course of the relationship, taking in all interactions with your brand.

Providing a positive, hopefully excellent customer experience will help a company to increase CLV. Keep in mind that CLV need not be static. Improving the customer experience helps a business expand its customer relationships, whether more purchasing or cross-selling and upselling and thus improve CLV. This effort should be focused in the most desirable segments. Having an effectively configured CRM platform can be crucial to delivering this CLV, enhancing customer experience, which in turn converts customers into loyal brand advocates and builds long-term overall profit

By definition customer retention is the activity a company undertakes to prevent customers from defecting to alternative companies. Successful customer retention starts with the first contact and continues throughout the entire lifetime of the relationship.

There are typically three reasons why a customer may leave you:

68% leave because they are unhappy with the service they receive.
14% are unhappy with the product or service.
9% decide to use a competitor.

Some helpful and commonly quoted research statistics:

A 5% increase in customer retention can increase your company’s profitability by 75% - Bain and Co
80% of your company’s future revenue will come from just 20% of your existing customers - Gartner Group
Attracting new customers will cost your company 5 times more than keeping an existing customer - Lee Resource Inc.

Calculating Your Customer Retention Rate

In order to calculate your customer retention rate you need to know:

Number of customers at the end of the period – E
Number of new customers acquired during that period – N
Number of customers at the start of the period – S

Once you have those the formula is pretty straight-forward:

CRR = ((E-N)/S)*100

Let’s say you started the quarter with 200 customers (S), you lose 20 customers but gained 40 customers (N) so when the period was over you had 220(E).

Using the formula we get ((220-40)/200)*100=90 or in other words, a 90% retention rate.

A word of caution: do not take the average across your entire customer base. Averages can distort reality and be very misleading. A better approach is to calculate retention rates across customer segments. This is not only more realistic but it also makes it easier to make projections, budget allocations, and have a baseline to build strategies.

customer Retention tactics

Now that you know the benefits of customer retention and how to calculate it, you need some effective tactics.

Set appropriate customer expectations - By setting expectations early and a bit lower than you can provide, you can eliminate uncertainty as to the level of service you need to offer to ensure your clients are happy. This clear vision enables your company to build KPIs around specific expectations and ensure you are always over delivering. Customers tend to remember negative experiences. So if you've over delivered on the past 20 occasions, but, once, you undelivered – your customer will no doubt quote that negative experience as a reason to cancel his or her contract with you.
Speed is secondary to quality - When it comes to customer service that keeps people coming back, the research shows that quality matters more than speed. According to a study by the Gallup Group, customers were nine times more likely to be engaged with a brand when they evaluated the service as "courteous, willing, and helpful," versus the "speedy" evaluation, which only made customers six times more likely to be engaged.
Build trust - “What differentiates you from competitors?” Once they answer, remember that and make a note to do some extra research and find ways that you can assist them with strengthening that point of differentiation through the services you provide. Give them a follow-up call the next week and let them know what you came up with. This shows you have a shared value and are genuinely interested in their business.
Be proactive - Anticipatory service is a proactive approach to customer service. Instead of waiting for problems to occur, a company that implements anticipatory service can eliminate problems before they happen.
Build on-line relationships - Your customers are online, so let’s start building relationships with them while they are glued to their computer screens. With the rise of social media, connecting with your clients through these mediums makes sense. I would focus my efforts on building social profiles on LinkedIn, Twitter, and Facebook. The majority of your customers will have active profiles on at least one of these websites.