How Do You Identify Your Best Customers?

1 MIN READ

What makes a great customer? Is it the one who places a huge order once, but never again? Or the one who places small orders but orders from you consistently year after year? We need to measure Customer Lifetime Value (CLV) to answer this question.

 

Calculate Customer Lifetime Value

Customer Lifetime Value (CLV) is described as the total worth to a business of a customer over the whole period of their relationship.

It’s simple to calculate the CLV. Multiply the average order from the customer with the average number of purchases by that customer in 1 year. Finally, multiply the number of years you have retained that individual as a customer.

CLV = Customer’s average order total * average number of purchases in a year * retention time in years

Think about your own relationship and loyalty to brands. What did you buy the first time you purchased from one of your favorite companies? A $5 latte? $30 blouse? $150 pair of hiking boots?

After that first purchase, how much you have spent with that brand since then? In the past 12 months, have you spent $50? $150? $1,000? If you’ve been loyal to that brand for years, what is the value of your purchases in total? Now, think about the marketing campaign that won your business in the first place. Imagine that the company calculated the ROI of that campaign only based on your first purchase. How much they would miss! This is why it is so essential to track beyond the initial sale and identify your most profitable customers.

 

Adjust Your Marketing Strategy

Now that you know who your best customers are, you may want to craft offers just for them or spend less on those who are less profitable.

CLV allows you to assess the success of your marketing campaigns accurately. When you look at customers’ purchases over time, that digital or direct mail campaign you thought only had a mediocre return may have a much more significant ROI. Work on creating impactful targeted offers. At first, that new customer might have bought something for a friend or purchased it on a whim. But once you get a sense of who they are and what they like, this allows you to cultivate that relationship over time and deepen your profitability.

 

Want to learn more? Let us help you identify your best customers and how to track their CLV.

 

Aradius Group is a commercial printing company that specializes in marketing strategy, specifically with direct mail, based out of Omaha, NE.