Friday, October 10, 2014

Top 5 Infographics of the Week: Lifetime Value of a Customer

Not to be confused with customer loyalty, the lifetime value of a customer is the projected amount of revenue a customer will generate over their lifetime at your business. A good rule of thumb to follow for this is called the Pareto Principle (also known as the 80-20 rule). This rule states that 80% of your company's revenue will come from 20% of your customers. That's why it is so important to focus on what's right in front of you - your existing customers. On top of that, research has found that it costs approximately five times as much to acquire new customers as it does to keep existing ones. So it's pretty much a no-brainer that you should work towards a retention program. But how do you do that? Well, we can't tell you the key to success but we can help by showing these infographics with tips to keep customers coming back.



#1: How Customer Lifetime Value Affects Your Business by FiveStars
  • Customer Lifetime Value (CLV) is calculated as average spending per month divided by monthly customer churn rate. Monthly customer churn rate is also known as is percentage of this month's customers who don't come back.  
  • Obviously, you want CLV to be as high as possible. 
  • The most successful small businesses get over 60-70% of their customers coming back on a monthly basis. 
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How Customer Lifetime Value Affects Your Business

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#2: All Customers Are Not Created Equal by RJMetrics
  • Your best customers spend 30 times more than your average customers.
  • The top 1% of customers spend as much as the bottom 50% of customers put together!
  • Once you've identified your top customers, work backwards. Where did they come from? How are they finding you? What was the first product they ordered?
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All Customers Are Not Created Equal

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#3: Maximizing the Lifetime Value of Your Customers by ANZ
  • It costs approximately five times as much to acquire new customers as it does to keep existing ones. 
  • Remember the Pareto Principle, also known as the 80-20 rule. This rule maintains that 80% of your company's revenue will come from 20% of your existing customers. 
  • The probability of selling to an existing customer: 60-70%. The probability of selling to a new prospect: 5-20%. 
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Maximizing the Lifetime Value of Your Customers

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#4: The Economic Value of a Customer by Signal Mind
  • A 5% increase in customer retention can result in an increase in profits by 23%. 
  • Repeat customers spend an average of 33% more than new customers. 
  • If you think about it, loyal customers are not price driven. They are driven by things like status (gamification), recognition, or preferred treatment (rewards). 
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The Economic Value of a Customer

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#5: Calculating Lifetime Value by KISSmetrics
  • One way to analyze customer acquisition is to calculate the Lifetime Value (LTV) of a customer. This is roughly defined as the projected revenue that a customer will generate during their lifetime.
  • Starbucks is a great example of this. In 2012, they expected to open 600 new stores, about 25% of which would be internationally. Using rough sales figures from 2004, KISSmetrics was able to estimate the LTV of an average Starbucks customer. 
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Calculating Lifetime Value

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