The truth is your customers aren’t only worth the amount of money they spend on your business today. They have a future value which keeps your business alive and growing.
There are so many reasons why knowing your Customer Lifetime Value (CLV) is so important but some of the key reasons are:
Your CLV is the average amount of money your customers will spend on your business over the entire lifetime of your relationship. For instance, simplistically put, if a customer continues to buy products or services from your business for 5 years and spends $10 per year, his or her customer lifetime value is $50, minus any money you spent to acquire that customer.
The danger of defining your customer value to a single purchase would be to undervalue the customer and therefore underserve. You could also be overserving a customer with a low CLV making them unprofitable in the long run. Practically speaking, when it comes to bidding on adverts if your competitors know their CLV they might be spending more to gain that customer, knocking you out the race.
Because we take into account the value of referrals. 'Oooooooh' we hear you say. Yes, we think so too.