For managers and marketers alike, the power to calculate what customers might be worth is alluring. That’s what makes customer lifetime value (CLV) so popular in so many industries. CLV brings both quantitative rigor and long-term perspective to customer acquisition and relationships.
What Most Companies Miss About Customer Lifetime Value
Customer lifetime value is a powerful metric that many companies use to determine which customers are the most profitable. Armed with that information, companies can then decide where to focus their customer acquisition and retention efforts. But despite its name, this popular metric is inherently flawed because it doesn’t account for how customers become more valuable to you over time – that is, how innovations that increase a customer’s capabilities make them more valuable. A simple exercise can help your team rethink how customer value should be measured and to see customers more as “value creating partners” than as “value-extraction targets.” It involves asking your team to complete a sentence that beings with “our customers become much more valuable when…” and going past immediate responses like “when they buy products” to responses like “when they give us good ideas” or “when they introduce us to new customers.”