What is a CUSTOMER LIFETIME VALUE (CLV)?
Customer lifetime value, i.e. CLV or LTV, is one of the key statistics that allow you to track a customer within their experience with your company products or services.
CLV allows you to determine the monetary value or worth that you can gain from a customer based on the entire customer-company relationship.
To calculate the long-term value of a customer, you first need to calculate the average value of the purchases they have made and then multiply that number by the average frequency of purchases. This is how you determine the customer’s value. In the next step, you have to multiply it by the client’s life expectancy.
CLV = (average value of purchase) x (number of times the customer makes a purchase each year) x (average length of the customer relationship in years)
Customer lifetime value is an easily calculated KPI providing a deep look into your customer base and reveals the strength of your brand loyalty. Knowing your CLV helps balance spending between acquiring new and keeping existing customers.
Simply said, CLV is a measure of customer profitability over time.
What is a NET PROMOTER SCORE (NPS)?
The Net Promoter Score is a statistic which indicates your customer’s degree of loyalty.
It shows you, how likely is the customer to recommend your services or products to other people. It also helps you discover customers who are prone to churning.
To calculate NPS, just ask the question: “On a scale of 0 to 10, how likely are you to recommend our product?”. Your can divide your customer answers in one of three buckets:
• Ratings from 0 to 6 you can consider them as critics
• Ratings from 7 to 8 you can see them as passives.
• Ratings from 9 to 10 you can highlight them as promoters.
Then subtract the percentage of critics from the percentage of promoters.For example, if 50% of your respondents were promoters and 20% were critics, then the NPS result is 30%.
The NPS is widely used by many of the world’s global market leaders to measure where they stand with their customers as low scores equate with poor CX and high scores signal exceptional CX.
What is a CHURN RATE?
Churn happens when a customer stops their subscription with your company and seizes using your products or services. The Churn Rate is what we call customer attrition.
The Churn Rate is an index that shows us how many customers have left in a given period of time. It brings light on how valuable your product offer was considered in that time and how many customers are estimated to keep going with your brand.
To calculate the Churn Rate, subtract the number of users who are with you at the end of the month from the number of users on a given day (e.g. the beginning of the month). Then the obtained number should be divided by the first number of users and we get the percentage which is the churn rate.
For example: (1000-800) / 1000 = 20% churn rate.
The Churn Rate KPI is important for understanding how specific practices, processes, and operations affect the customers actions and highlighting growth roadblocks.
