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How to Automatically Increase Your Customer Lifetime Value Here are the basics of customer lifetime value, how to track it and how one personalized customer outreach strategy can dramatically boost your score and your income.

By Rick Elmore Edited by Kara McIntyre

Opinions expressed by Entrepreneur contributors are their own.

Like everything good in the world, customers have value. And while their value as people is immeasurable, their value as customers can be quantified. Savvy businesses use this knowledge to predict future demand, strengthen marketing campaigns and make better business decisions. Most critically, they can increase their customer's lifetime value, thereby growing their business without adding a single customer.

Tracking this value reveals the untapped potential hiding in your existing customers and the true value of customer relationships. Not only are they more likely to buy from you than new customers, but they spend 67% more on average. That means resources you put toward retaining your existing customers can pay higher dividends.

In truth, it costs five to 10 times as much to find new customers as it does to sell to your existing base. This is the reason an increasing number of businesses are shifting their focus away from customer acquisition to customer retention. Let's learn a bit more about customer lifetime value.

Related: 6 Tips for Increasing Your Customer Lifetime Value

Learn to calculate customer lifetime value

Calculating customer lifetime spending isn't difficult. The customer lifetime value (CLV) metric represents how much your average customer purchases over their entire relationship with you. The customer lifetime value formula has a few parts so let's examine it.

The math breaks down this way: average order value (AOV) x average purchase frequency (APF) x average customer lifespan (ACL) = customer lifetime value (CLV).

Your average order value is computed by dividing your total revenue for a year by the year's total number of purchases. This tells you how much an average order is worth.

Now you need to know how often your customers bought from you during that year. You can compute your average purchase frequency by dividing the total number of purchases by the number of unique customers that bought from you.

Multiplying your AOV by your APF tells you how much money your average customer spends in a year. Now, you simply have to multiply that figure by the average number of years a customer stays with you (their average customer lifespan) to compute how much they'll spend with you in total. This is the last part of the equation. To compute your average customer lifespan, you simply average the number of years customers remain with you.

By the end, you'll have your customer lifetime value (CLV) figure, the amount of money, on average, that customers spend with you over their entire lifetime.

Related: 4 Books to Improve Your Customers' Lifetime Value

How to use customer lifetime value to improve your business

On the customer acquisition side of the equation, your customer lifetime value is useful for making financial projections. When you know how much revenue an average customer returns over their lifetime, it's easy to compute how many new customers you'll need to hit specific growth targets.

In the same way, you can use customer lifetime value to figure your maximum spend per new customer. Consider that if you know each customer is worth $2,500 to you on average over their customer lifetime, then spending more than $2,500 in customer acquisition costs is a losing proposition. It also becomes easier to determine your high-value customers across all customer segments by comparing them to the average.

We can see that customer lifetime value (CLV) is good for customer acquisition, but retention is where it really shines. That's because every dollar you add to your CLV is an extra dollar in revenue on average across every one of your customers.

Any steps you take to increase customer lifetime spending translates to outsized revenue increases. In this way, working to increase your customer lifetime value raises all boats, whereas adding a new customer lifts only one.

Related: How to Increase Customer Lifetime Value And Boost Profits

How to increase your customer lifetime value and customer loyalty automatically

There are a number of ways to increase your customer's average lifetime value. You can:

  • Offer stellar customer service that's eminently responsive to customer needs
  • Use targeted, personalized marketing tactics to build a lasting customer relationship
  • Create a loyalty program that rewards loyal customers and repeat business with financial rewards
  • Develop a referral program that rewards brand loyalty whenever a customer refers a friend or colleague
  • Improve your customer onboarding experience to establish a strong business relationship immediately

These all amount to improving your customer relationship and overall customer satisfaction. They can be time-consuming, but they're essential parts of the equation.

There are also parts you can automate, elements you can set on autopilot to drive your customer lifetime value skywards without supervision. To improve customer retention, encourage repeat purchases and improve customer lifetime value automatically, leverage the power of automated handwritten notes.

Related: The Business Benefits of the Handwritten Letter

Handwritten notes drive a high customer lifetime value

Technology brings the world to our doorstep, but it can make us feel more alone than ever before. Email and text messages created a world of instantaneous mail but removed the human element.

A faceless email feels cold and impersonal compared to a handwritten card penned lovingly by a friend. Generic digital messages are certainly not the way to treat a patron when you're building customer loyalty. When you treat customers with the same care and personal attention you would shower on a trusted friend or family member, you begin to grow deep customer relationships, laying the groundwork for an escalating customer lifetime value.

If your customer outreach and marketing efforts are primarily digital, you're cutting yourself from a time-tested analog solution that's getting new life through digital and robotic automation; in the time it takes to write one note, you can have thousands handwritten by robots. Handwritten notes are ideal for customer communication efforts like thank you notes, welcome notes, customer reminders and more. At my company, we see the power of automated handwritten notes all the time.

One of our clients, a large garage door and window company, automates a multiphase gratitude campaign. They have handwritten cards mailed after sales calls and estimates, service calls and on client anniversaries. Since undertaking this project, they've seen a 57% increase in customer lifetime value and a 150% increase in customer referrals.

Handwriting automation allows for effortless authentic moments with your customers. These can become sales opportunities as you build momentum, adding additional value to the customers you have and increasing referrals for new business. And it happens — automatically!

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Rick Elmore

CEO of Simply Noted

Rick Elmore is an entrepreneur, sales and marketing expert, and former college and professional football athlete. As the founder and CEO of Simply Noted, Rick developed a proprietary technology that puts real pen and ink to paper to scale handwritten communication.

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