Infographic: How Customer Lifetime Value Affects Your Business, and 5 Ways to Increase It

Improve customer lifetime value

Some customers are more valuable than others. But just how more valuable? The longer a customer stays a customer, their value to you as a business continues to grow over time. For instance, as a loyal customer to Pinkie’s Bakery twice a week, in over a year, I will contribute over $624 to their revenue. If I stay a loyal customer for years, that’s easily thousands of dollars. Wouldn’t it be nice to have hundreds or thousands of customers who contribute that kind of revenue to your business?

This is called Customer Lifetime Value: the projected amount of revenue a customer will generate over their lifetime at your business. You want your customer lifetime value to be as high as possible, you don’t want a ton of new customers who come once and never come back again. Repeat loyal customers is where the bulk of your revenue is; loyal customers generate over 10X more revenue in their lifetime!

So here is an infographic covering what customer lifetime value is, how to calculate it, and how to increase it across the board at your small business. We have five ways to not only increase customer spending over time, but how to use a customer loyalty or rewards program to accomplish your goals as well.

How to Increase Customer Lifetime Value

What are some ways you get customers back after their first visit? Let us know in the comments!

 

Customer Loyalty Marathon

How Customer Lifetime Value Affects Your Business and 5 Ways to Increase It

What is Customer Lifetime Value?

Customer Lifetime Value is the projected amount of revenue a customer will generate over their lifetime at your business.

Here’s the formula for estimating lifetime value:

  •  Customer Lifetime Value (CLV) =  Avg. Spend Per Month /  Monthly Customer Churn Rate*

* Monthly Churn Rate is the % of This Month’s Customers Who Don’t Come Back

For example:

  • $50 Lifetime Value  = $10  Average Spend Per Month / 20% of Customers Don’t Come Back Each Month

Obviously, you want Customer Lifetime Value to be as high as possible.

To improve it, you could increase spend:

  • $60 Lifetime Value = $12 Average Spend Per Month / 20% of Customers Don’t Come Back Each Month

Or get more customers to come back (reduce the monthly churn rate):

  •  $100  Lifetime Value = $10 Average Spend Per Month / 10%  of Customers Don’t Come Back Each Month 

That’s a NO-BRAINER: Get more customers to come back.

Sounds simple, but even at big chains, many customers don’t come back.

% of Customers Who Don’t Come Back Within Next 6 Months After A Visit

  • IHOP 58%
  • On the Border 58%
  • California Pizza Kitchen 61%
  • Chili’s 56%
  • Buffalo Wild Wings 53%

 New customers churn at very high rates…

% of New Customers Not Returning in Next 4 Months After First Visit

  • Retail = 58% Churn
  • Restaurants = 55% Churn
  • Casual Dining = 53% Churn
  • Salon & Spa = 50% Churn

 …but once a customer comes back a second time, they’re hooked!

% of 2nd Time Customers Returning in Next 4 Months After 2nd Visit

  • Retail = 69% Retention Rate
  • Restaurants = 72% Retention Rate
  • Casual Dining = 73% Retention Rate
  • Salon & Spa = 78% Retention Rate

The most successful small businesses get over 60 to 70% of their customers coming back on a monthly basis.

Some restaurants do a good job with retention, while others don’t.

Graph of Distribution of Monthly Retention Rates Across Over 100 Restaurants

So want to increase CLV? Get more customers to come back. Here’s 5 ways to do it.

Increase customer lifetime value

5 Ways to Increase Customer Lifetime Value

  1. TREAT NEW CUSTOMERS LIKE VIPS with discounts, freebies, or even just a simple “Thanks for trying us!”
  2. KEEP IN TOUCH WITH CUSTOMERS with timely emails, text messages, and social media posts.
  3. GIVE CUSTOMERS A REASON TO COME BACK SOON with enticing deals that have an expiration date.
  4. IMPLEMENT A MODERN REWARDS PROGRAM like Fivestars to boost your customer visits by 12-44%.
  5. TREAT REPEAT CUSTOMERS LIKE KINGS with VIP lines, customer photo walls, and other over-the-top experiences they’ll tell their friends about you.

Sources

  1. Restaurant Industry Tracking Survey by Dectiva
  2. Fivestars Data Study

What are some ways you get customers back after their first visit? Let us know in the comments!

 

Customer Loyalty Marathon

Angela Prilliman
About the Author
Angela Prilliman

Angela is a Fivestars writer, designer, and illustrator extraordinaire. When she’s not crafting up marketing assets, she loves to doodle and overshare on her increasingly popular Instagram, @heyitsheli.

2 Comments

  • As a strategy and training consultant I do a few specific things:
    A) send a handwritten thank you note for the first opportunity
    B) tag the client in a fb shout out
    C) send the client an article or info that pertains directly to their business
    D) give the client more than was promised
    E) make the service/training/solution personal and customized

    Enjoyed the infographic, and thanks for your generous share of info!

  • One thing I noticed about the information was that you can double the CLV by either doubling the amount each customer spends or raising the retention rate. Either way you end up with $100 CLV per customer.

    The question you would need answered is, “Which direction would have the quickest impact and engender a better relationship with the customer?”

    The answer is going to specific for the industry. Some industries it’s better to charge more because that increases the value in the minds of the consumers, however raising your retention rate is always going to be a good thing. In some industries, you would need to increase the price points while increasing the amount of customers that return for a second or third visit.

    As you can see, an 80% retention rate on customers is actually quite good. Most companies deal with a 50% – 70% retention rate… And a lot the time, the retention can be fixed by simply looking at the experience each customer receives when they interact with your company. This means online and in person.

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