Maybe you’re a seasoned business owner who is completely familiar with the term “customer lifetime value.” Or maybe you’re just starting your adventure and have absolutely no idea what this term means. Regardless, we will demonstrate the importance of customer lifetime value and how it can be beneficial to the success of your business. First, let us define customer lifetime value. Customer Lifetime Value, or CLV for short, is the measurable value of a specific customer's “worth” to your business. In other words, how much money (revenue and referrals in some cases) one specific customer has generated for your business.
Why knowing your Customer Lifetime Value is Important
Acquiring new customers is significantly more costly than selling to a customer who has already made a purchase. In fact, customer acquisition is often one of the more difficult and time-consuming tasks that every business owner must face. Knowing the value that each customer brings to your business can help you calculate your total marketing budget, how to spend it, and how to maintain your existing customer base. The beauty about Customer Lifetime Value is that it is one of the easier to track statistics. In its simplest form, you only need three numbers to solve for it. Let's take a look.
To calculate CLV, the equation is as followed:
CLV = Annual profit per customer X Average number of years your customers stay with you – Initial acquisition cost.
That is the most simplistic breakdown of CLV. More complicated models are available and can factor in retention percentage, yearly spend on keeping customers, and more.
Let’s break down the formula and do a quick example to see it in action.
For example, as a campground owner, let's say each customer generates $700/year. It cost you $150/year to acquire this customer, and your customers, on average, remain coming to your campground for the next 10 years. The equation for this example is as follows:
$700 X 10 years -$150 initial acquisition cost = $6,850. With this information, you can now better plan your marketing expenses and have a complete overview of your business. Thus, if used on each customer, you can identify your most valuable customers based on this formula. As stated before, there are more complex versions of this formula, but this is a great place to start.
Increasing Customer Lifetime Value
In the following sections, we will cover a few ways you can increase the lifetime value of your customers. We will use real-world examples that have been proven time and time again to work and deliver results. Fine-tuning these examples to your business will be the key to getting the most out of this article.
Upsells and Cross-sells
Upselling a customer is one of the easiest ways to increase their CLV. Upsells can come in the form of complementary products (cross-sells), other services you offer, or upgraded versions of the product you were initially selling to your customer. Look at this article for a complete list of the types of “upsells” you can offer your customers. The golden rule to upselling is this: only upsell when the customer receives value for the new product or service they are buying. Do not force upsells to customers who truly do not need it. It is bad business, but it can be detrimental to your business if your customer catches on. The customer can write bad reviews, stop being your customer, or worse.
Here are a few examples of companies that use cross-selling to increase their Customer Lifetime Value.
Amazon
Amazon is the king of e-commerce, and for a good reason. They have mastered the art of upselling and cross-selling. If you notice, every time you check out, a little box on the page mentions other products customers previously bought.
Moreover, these items can complement what's currently in your cart or can be an upgraded version of the product you are thinking about purchasing. Think about your business and the products you can upsell. Adding these to your website or in-person selling scripts can be extremely valuable to your business.
Restaurants (Uber Eats)
When you order food online, there are often several upcharges that come with it. For example, adding more cheese to a burger or special toppings to a pizza often have an additional charge associated with them.
Upselling in this fashion is extremely discrete, not pushy, and offers great results for businesses that deploy this tactic efficiently. You can then follow this upsell with a cross-sell of a smoothie or other item that the customer did not know they initially wanted. This is the perfect strategy for any business owner with small upgrades (upcharges) to offer their customer.
Barber Shops (Service Based Industries)
If you’re a barber or another business owner in a service-based industry, you might be wondering how you can incorporate “upsells” into your business model. For example, hot towel shaves, washing hair, and beard shape-ups are all popular upsells that barbers can deploy to increase their customer's lifetime value. Maybe even membership deals for monthly haircuts could be an effective strategy to keep revenue flowing and customers in your shop.
Campsites
Since we are on rvResortScout, after all, let's talk about campground owners and what they can use to increase their customer's lifetime value. Upsells such as upgraded campsites, washing their RV’s while they are at the campground, and offering membership deals to your campground can all be effective upsells and cross-sells to boost your CLV.
I’d love to hear about the other unique upsells you guys can think of. Write any that come to mind in the comment section below.
Offers
Offering promotions or sales can be a great way to get previous customers to buy again and gain new customers. As a business owner, I am certain you are familiar with the concept of a sale. Even if you haven’t used it in your own business, I am certain you have seen it in action across other businesses.
Undoubtedly, the most common “offers” or sales come in the form of percentage discounts, buy one, get one free, and “free” add-ons that come as part of a bigger package. Using these “offers” can significantly boost your customer lifetime value and promote your business. Here are a few examples that have worked for us and our customers in the past:
- Buy one night get one night free (up to 2 free nights)
- For ONLY $29.99, receive (blank) and get (blank) for free
- A massive 50% off this weekend only
- For every purchase made by your friends using your coupon code, receive a $10 in-store coupon.
You can fine-tune all of these examples to a specific business, and you can enjoy the results they bring. Of course, some experimenting might be needed as you hone your message to your target audience.
Using Email Marketing to Increase Customer Lifetime Value
Email marketing is a constant way to increase your CLV. Not only is it effective, but it is easy to do. You can schedule emails weeks in advance, and the content does not have to be long-winded, as in the case of articles many times. In fact, an email can be as short as a paragraph or two of valuable information that gets your customer engaged and on your homepage (or specified landing page). We have written up a quick article summarizing 4 tips for RV Resort Email Marketing that you can use to understand the process better.
Often, the most difficult part of any email campaign is getting started. So to help you, here is a quick list of emails topics I have complied to help you get started. I even ordered them for you so they can be as effective as possible. Feel free to change it up to fit your industry and your ideal audience.
Email Ideas
- Introduction email: Explain who you are, what you do, and how you can be of service to your audience.
- Main offering: Give a breakdown of what you offer, the features, benefits, and how it will enhance your customer's lives.
- Value email: Talk about something important to your customers. Offer a personalized email telling your customers how much you care about a particular issue.
- Complimentary Offerings/services: Explain what else you can do to help your customers solve their biggest problems.
- Case studies: Email explaining how you have helped previous clients in the past
- Promotion: Offers and promotions about your business. Send your latest promotion to your audience via email.
Those are just six of the many different ways you can engage your audience via an email campaign. Sending these emails once a week can keep you engaged with your audience for a very long time. If you need help curating these emails, please schedule a call, and I will gladly discuss your options.
Loyalty/Rewards Program
Having customers return to your business regularly is a surefire way to increase your customer's lifetime value—what better way to do that than a reward program. Reward programs are powerful tools that any business can deploy to encourage customers to return. In fact, there's a chance you are part of a few reward programs yourself at some of your favorite stores.
One of the most popular examples of this is coffee shops. For example, Starbucks offers stars each time you visit one of its locations. Earn enough stars, get free drinks, meals, and even merchandise. This is Starbucks' way of rewarding you for shopping there. And chances are, if you are there getting something for free, you’ll end up buying something additional anyway. This adds to your own customer lifetime value at Starbucks.
How can you incorporate a reward program into your business? What are you willing to give away for free in exchange for more frequent visits to your business? Knowing your customer lifetime value can give you a better idea of the amount of money you can put into your reward program.
VIP Customers
Not all customers are equal. So let’s face it, as business owners, we have our favorites. The customers who we love hearing from and we love seeing. Not only do they treat us well, but we feel good delivering a great service that they can enjoy. These are your VIP customers, and they deserve to be treated as such. Typically, these customers have the largest customer lifetime value and have spent the most money on your business compared to other customers. Finding the right rewards for these customers is important since they deserve to be treated with respect and be given the best rewards.
Some of the most typical services/products to give your top-tier customers include a free newsletter catered to them discussing better pricing, more services, and extremely valuable information. Other items include free one-on-one meetings with the CEO, private groups, gifts, exclusive offers, early access to new products and services, and more. They will spread positive news about your business, helping to bring in more customers, and keep your VIP customers happy.
At rvResortScout, our VIP customers get specialized rates, a gift every holiday, and early access to our latest products and services. Becoming a VIP customer takes some work but is well worth it. You can automatically become a VIP customer by having three campgrounds listed on the rvResortScouts directory or one campground listed for five consecutive years.
Increase Customer Lifetime Value Implementation
Implementing these changes can be time-consuming and frankly take a lot of tweaking to get right. Delivering an accurate message to your audience and engaging them is crucial if you want to increase your CLV. Doing so can lead to a much better understanding of your business as a whole. Using the equation above, you are now able to accurately gauge the maximum amount of money you are comfortable spending to acquire new customers and how to increase their lifetime value.
One last thing, business owners often think every customer should be held on a pedestal. When in fact, it's perfectly fine to “fire” a customer. If a customer no longer makes sense to have either because of a declining customer lifetime value or other reasons, feel free to remove that customer from your business. So, if you need help implementing any of the tips and tactics we discussed above, do not hesitate to reach out. Here is a link to schedule a call with the rvResortScout marketing team.
