Customer Lifetime Value (CLV) is the gross profit a customer delivers to your business in their lifetime. It’s the total amount of revenue your business can expect to make from one client (before subtracting costs). Yes, the process does require making some guesses and applying some generalizations—it’s not exact math—but it’s still a critical part of your business strategy.
Calculating Your Customer Lifetime Value (CLV)
CLV is made up of three core components: Average Order Value, Purchase Frequency, and Customer lifespan. But before we get into those, let’s determine who our subject is.
Identify your ideal customer
Divide your client list up like a staircase. For example: At the bottom are your least profitable customers. Maybe they made one appointment a couple years ago and they didn’t spend much. The next segment would consist of one-time buyers whose last visit was 12-24 months ago. Your second-best customer segment would be those who’ve patronized your business multiple times, seem to come in every 6-11 months, and spend a fair amount when they do. At the top end are your loyal repeat customers. They come in every few months and they spend either an average to above-average amount with each visit. They are the ones most likely to return again in the future, to refer your services, and to remain loyal even if competition increases. Congratulations—these are your ideal customers.
Core Component 1: Average Order Value
Take a look at the spending patterns of your ideal customers to determine—on average—what they will typically spend at their appointment. Remember to include product sales and tips into this number if applicable.
Core Component 2: Purchase Frequency
Make your best guess as to how many treatments this particular customer will purchase during a 12 month period.
Core Component 3: Customer Lifespan
Contrary to what you might assume, “Customer Lifespan” does not refer to how long your client will live. Rather, it’s how many years your ideal client will come to you for services. Oftentimes in the beauty industry, you could have clients that stay with you for 10, 20, 30+ years. But consider your unique services and the demographic of your ideal client. Will they ever “outgrow” your services? Could they potentially even grow further “into” your services? Are you located in an area where clients are putting down roots or just passing through? Are you yourself planning to move your business more than 5 miles from its current location anytime in the near future?
Calculate CLV Using the 3 Core Components
Multiply the Average Order Value from Step 2 by 12 to find that customer’s Annual Value. Then, take that Annual Value and multiply it by your Client Lifespan determined in Step 3. (Example: $3,000 x 10 years = $30,000.) Finally, if you believe that your client will refer you a number of customers during his or her lifetime as well, you can also add in the predicted value of those new clients. Don’t be afraid to utilize what you know historically to make educated forecasts about the future. Humans are surprisingly predictable.
Putting Your Data to Work
Tactics for Increasing Average Order Value
- Offer service bundles: Offer discounts on more than one procedure purchased at once. Ex: Get 5 Photofacial treatments for the price of 4.
- Advertise upgrades/add ons: Selling a Hydrafacial, for example? Be sure you’re educating your clients on the benefits of customized infusions available.
- Cross-sell other treatments: What goes great with your massage? A relaxing facial.
Tactics for Increasing Purchase Frequency
- Establish a loyalty point program with expirations on the points: Earn 20 points with every visit. Refer a friend and receive 50 points. Redeem your points for free product or money off your next treatment. Points expire at the end of every calendar year.
- Offer limited time deals & flash sales: Today only, get $100 OFF Kybella. Call to lock in your appointment.
- Keep the lines of communication open: Be sure you’re accessible and communicating across multiple channels. Send reminder texts, monthly email newsletters, and post regularly on social media.
Tactics for Increasing Customer Lifespan
- Set up simple nurture campaigns: ECreate automated email drips with educational content, tips, specials, surveys, and appointment follow-ups.
- Start a subscription program: Offer discounted services with recurring monthly subscriptions.
- Personalize their experience: Simple initiatives go a long way. Provide an easy-to-use customer portal, make reordering easy, personalize email communication with merge tags, keep detailed notes about their preferences, acknowledge their birthday.
Lightening the Load
If that sounds like a lot of work, don’t worry. You don’t have to tackle it all at once! This is a marathon, not a race. There are also resources and tools that can significantly lighten the load.
Take Brandabl, for example. Brandabl makes it quick and easy to keep in touch with your clients. We can help you advertise those service bundles, flash sales and loyalty programs on social media. We can help you educate your audience, priming them for purchases and up-sells. We can help you strengthen your presence online and stay top of mind with your clientele.
Did we mention we can even help with those E-blasts? That’s right. You can use Brandabl posts however you please. Repurpose your content for your website, your blog, or email newsletters! You get free reign over thousands of pre-written posts, professional graphics and ultra-versatile content to help bring in more business than ever before. And hopefully, you discovered above just how much value each new client has the potential to bring.