Online reviews and reputation management do more than just boost your business’s growth and conversions. Consider this long-term benefit: Online customer reviews have a significant influence over customer lifetime value (CLTV or CLV).
If you don’t know what CLTV is, or if you are not familiar with the concept, then it’s time to think about adding this valuable metric to your business strategy. Knowing how to increase customer lifetime value will help you understand the level of satisfaction your customers have in your company and what you can improve to serve future customers better.
In this article, you’ll learn how to increase customer lifetime value as well as how to calculate customer lifetime value. We’ll also illustrate how you can leverage online customer reviews to shape your business’s CLTV marketing tactics and increase your customer lifetime value.
What Is Customer Lifetime Value?
Customer lifetime value (CLV or CLTV) refers to the total revenue that you expect to generate from a customer. This is not an exact value but a predicted value based on the customer lifetime value formula (CLV formula).
To get a better CLV, company owners implement a customer-centric approach to marketing, making sure that their customers are satisfied and plan to use a company’s products and services repeatedly over time. This is why successful companies learn how to calculate customer lifetime value. They invest in customer satisfaction and customer retention strategies to keep one customer happy for as long as possible.
Why Is Customer Lifetime Value Important?
Now, you should have a better answer to what is customer lifetime value? But you might have doubts about whether or not it should matter to you.
There are many reasons business owners should learn how to increase their customer lifetime value and use the customer lifetime value formula to determine an accurate figure. Here are some compelling statistics that demonstrate why understanding lifetime customer value is a big deal for any business:
• Existing customers are 60-70 percent more likely to use your business (Source: Altfield).
• The Pareto Principle applied in marketing states that 80 percent of your revenue comes from 20 percent of your customers (Source: Marketing Insider).
• Increasing customer retention by five percent can increase profit by up to 25 percent. (Source: Brain & Company).
• Ninety-three percent of consumers are more likely to do repeat purchases from companies with excellent customer service (Source: Microsoft).
In a nutshell, businesses that implement an effective CLTV marketing strategy reap many benefits, including customer loyalty, revenue growth and a lower cost of customer acquisition.
How To Calculate Customer Lifetime Value
What is customer lifetime value, and how can it be calculated? To answer these questions, you need to study the customer lifetime value model and the customer lifetime value formula. Here’s how it works:
Using the Customer Lifetime Value Model
The customer lifetime value model comprises the following values:
• Average purchase value – Total revenue in a given period divided by the number of purchases over the same period
• Average purchase frequency rate – Number of purchases divided by the number of unique customers
• Customer value – Average purchase value divided by average purchase frequency rate
• Average customer lifespan – Average number of years the customer buys from you
With all these values available, we can now calculate the customer lifetime value with this CLV formula:
CLTV = Customer value x Average customer lifespan
Now that you know how to calculate lifetime value of a customer, you can assess whether or not this metric meets your standards and what you can do to create a customer lifetime value marketing strategy. Mastering the CLV formula can help you gain a deeper understanding of your business and whether or not your customers are valuable enough to bring you continued revenue.
Cost of Customer Acquisition vs Customer Lifetime Value
Another reason marketers learn how to calculate lifetime value of a customer is to compare it with another metric called cost of customer acquisition, or customer acquisition cost (CAC). Businesses look at CLV vs CAC to assess their lifetime customer value and how much they spent to acquire them.
Here’s how to calculate CAC:
According to HubSpot, an ideal CLV:CAC ratio is 3:1. This means your customer lifetime value should be three times the value of your cost to acquire them.
If your CLV:CAC ratio is 6:1, then it might mean you need to put more effort into acquiring customers. If it’s the opposite, say 1:6, then you might be overspending on acquiring customers that don’t use your business for too long, as evidenced by the low lifetime value of customers.
How To Increase Customer Lifetime Value With Online Reputation Management
There are many methods of CLV marketing to increase lifetime customer value. Customer lifetime value marketing experts implement multiple methods to improve customer experience, build customer loyalty and bolster customer retention.
In this resource, we’ll be focusing mostly on online review management and tailoring your reputation management strategy to strengthen your CLTV marketing efforts.
Here are some reputation management tips that you can use to improve your CLV marketing campaigns.
Use Online Reviews To Segregate Customers
Most customer lifetime value marketing experts perform customer segregation as a means to personalize email and SMS marketing campaigns.
You can also apply segregation using customer online reviews. Based on your online review management data, you need to group your customers into three based on their feedback:
• Satisfied Customers
Satisfied customers can be your brand’s best advocates. When getting positive company reviews from these customers, encourage them to share their experience with their friends and their social media pages, if possible. You should also feature their feedback on your website, blogs and social media pages.
Happy customers promote your brand to their friends and family, which is a huge asset to customer acquisition and increasing lifetime value of customers.
• Neutral customers
If you have online customer reviews that are neither positive nor negative, take this as an opportunity to reach out and convert them into your brand’s advocates. Maybe they just had a small concern that prevented them from providing positive company reviews. It’s your job to find out how you can serve your customer better and these are the ones that are worth the effort.
• Dissatisfied customers
Not all unhappy customers can be turned around, but despite their negative company reviews, there is hope. You can still use your best judgment to gauge those who have the potential to change their minds and become one of your company’s biggest fans. This takes a lot of creativity and caution, but when done right, gives you a once-in-a-lifetime opportunity to boost your customer lifetime value, one customer at a time.
Showcase Your Best Online Reviews on Your Site
Create a dedicated page on your website that features your best customer online reviews. A testimonial page is a great way to demonstrate social proof and gain customer trust.
If you have WordPress, you can install a review widget to easily add customer reviews to any page on your site. Check out Rize Reviews’ review widget and see how easy it is to build a page that shows all your positive reviews from multiple sources like Google, Facebook and the Better Business Bureau.
With a review page, you’re telling a story about your brand and how it has helped others in a way that feels genuine and authentic.
Respond To Customer Online Reviews on Time
Our reputation management agency, Rize Reviews, recommends responding to all customer reviews within 24 to 48 hours to boost customer trust and demonstrate your willingness to help.
Companies with an online reputation management strategy and review response in place understand that responding to reviews quickly and appropriately builds customer trust. More importantly, a BrightLocal survey shows that 97 percent of consumers read the company’s response to a review. Consumers are now paying close attention to online reviews and making their decisions based on them.
To ensure that you see all your reviews, you need a reputation management software like Rize Reviews’. Having an organized dashboard to view, respond to and monitor your online reviews is essential to quickly address all your customer reviews.
When prospects see that your company is actively responding to reviews, it lets them know that you care about your customers. This impression can push them to choose your company over a competitor because they trust that you are ready to fix problems if and when they arise. When you follow through with their expectations and deliver exceptional customer service, you’ve already helped your business boost the lifetime value of customers.
Use Customer Feedback To Improve Your Brand
Your negative or neutral online customer reviews can help you identify common pain points that your customers experience when engaging with your company. Being able to hear feedback directly from customers is valuable to your growth as a brand.
With accurate data from your customers, you can use online reviews to improve your product or service, revamp your customer service processes or revise company policies to achieve better customer satisfaction and retention.
Companies that recognize the value of existing customers know that providing the best customer experience pays off in the long run. This is why online customer reviews should always be a factor when implementing a CLV marketing campaign. The process does not need to be complicated, and any business owner can learn how to calculate lifetime value of a customer.
If your company does not have the staff or resources to implement online review management, you might consider partnering with an online reputation management agency like Rize Reviews.
Rize Reviews offers review monitoring, review generation and reputation repair for any business that is serious about increasing its review ratings and online reputation. Check out Rize Reviews and get started with a better online reputation that improves your customer lifetime value.