Customer Lifetime Value

Hey there! Let’s talk about something that often gets tossed around in business circles but isn’t always fully understood: Customer Lifetime Value, or CLV. If you’ve ever wondered how some companies seem to have a loyal customer base that just keeps coming back, CLV is likely part of the secret sauce. Tim Hiebenthal, a data expert from Project A, recently shared some down-to-earth tips at a INSIDE CRM Meetup in Berlin. I’m here to break down his insights into simple, practical advice you can use.

Understanding CLV: Why It’s a Big Deal for CRM

Customer Lifetime Value (CLV) is all about figuring out how much money a customer will spend with you in the long run. It’s not just about that first sale—it’s about the whole relationship. Think of it like this: if you know how much a customer is likely to spend over time, you can make smarter decisions about how much to invest in keeping them around.

So why does CLV matter? Well, it helps you see the bigger picture. Instead of just focusing on quick wins, you can start thinking about long-term gains. For example, if you know that a particular group of customers is going to be more valuable over time, you might decide to give them a little extra love, like special offers or perks. On the flip side, if a group isn’t likely to stick around, you can adjust your strategy accordingly. In short, CLV helps you make sure you’re putting your energy where it really counts.

Getting the Real CLV

Now, let’s clear something up. Tim made a good point when he said, "THE Customer Lifetime Value does not exist." That might sound strange at first, but what he means is that CLV isn’t a one-size-fits-all number. You’ve got to look at it in context—different groups of customers at different points in time.

Tim shared an interesting example of how comparing CLV across different groups can sometimes give you the wrong idea. Older customer groups showed a higher overall CLV, simply because they’d been around longer. Meanwhile, newer groups had lower CLVs, but that doesn’t mean they’re not valuable. They just haven’t had the time to rack up the numbers yet.

Tim used a chart to show how earlier customer groups seemed more profitable just because they’d been around longer. When you break CLV down into shorter timeframes, you might find that newer customers are on track to be just as valuable, if not more. That’s why it’s so important to look at CLV broken down into lifetime months and years to make the right business decisions.

Avoiding Common Pitfalls

When you’re looking at CLV, it’s easy to make some mistakes. One big one is self-selection bias. Let’s say you notice that customers who start on a free plan tend to leave more often than those who start with a premium plan. Does that mean the free plan is a bad idea? Not necessarily. It could just mean that the premium customers are more committed right from the start. Tim suggests breaking down your customers into groups based on things like how they use your product or how engaged they are. That way, you get a clearer picture of what’s really happening.

Making CLV Work for You Through Better Customer Experiences

Tim also had some practical tips for boosting CLV by focusing on customer experiences. One way to do this is with lift tests. So, what’s a lift test? It’s basically a simple experiment where you offer something special—like a personalised deal—to one group of customers and then compare their behaviour to a group that didn’t get the offer. The difference, or "lift," shows you how effective your offer was. But these experiments aren’t limited to digital messages. It could also involve the physical user experience (e.g. adding a free product sample to an order) as long as you can make sure to isolate the test and control groups and measure the response.

Doing things like this not only makes customers feel valued, but it also helps build a stronger connection with your brand. Plus, as Tim pointed out, these tests work best when you target them at the right customer groups, where there’s the most potential to make a difference.

Relevant Q&A

Q: How can businesses effectively measure the impact of customer experience on CLV?

A: Tim suggested using lift tests and cohort analysis to figure out how different customer experience efforts affect CLV. By comparing customers who get special treatment with those who don’t, you can see which strategies really work.

Key Takeaways

• Break Down CLV: Look at CLV over different timeframes and customer groups to get a better understanding.

• Watch Out for Mistakes: Be aware of biases that can lead to misunderstandings in your data.

• Focus on Experience: Use simple tests to see how improving customer experiences can increase CLV.

About the Speaker

Tim Hiebenthal is a Lead Analytics Engineer at Project A. He’s worked with companies like Flixbus, DAZN, and Wellster Healthtech, where he’s learned a lot about CRM and using data to make better decisions.

About the Meetup

Organised by Audrey Mann and Jessica Jantzen, the INSIDE CRM Meetup is a platform for CRM professionals to share insights, strategies, and success stories. It brings together experts from various industries to discuss the latest trends and innovations in customer relationship management.

Disclaimer: This article has been generated with ChatGPT based on an audio transcript and presentation slides from the INSIDE CRM Meetup. The content has been reviewed by the presenter to ensure accuracy and relevance.