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What is customer lifetime value and why it matters for your business

It is widely acknowledged that 20% customers make 80% of sales. So, as a marketer, you need to know those customers that fall in this 20% bracket so that you cater to them specifically and thereby boost your sales. The solution lies in customer lifetime value (CLV).

Simply speaking, customer lifetime value is the net profit a person will bring to your business over the course of their relationship with you. This metric helps companies track their most valuable customers and predict the future customer base as well. The CLV is calculated differently in different businesses.

The most difficult part of measuring CLV is to determine the lifetime of the customer. This value differs from business to business. The complexity in calculating is exemplified by the fact that only 42% of the companies are able to measure CLV accurately.

However, measuring CLV is fundamental to business. Because as compared to the probability of selling to an existing customer which stands at 5% to 20%, the probability of selling to an existing customer is 60-70%. Here is a simple calculator which can help you in calculating the CLV.

Although, there can be a number of areas where knowledge of CLV can assist you, following are some of the most important-

1. To understand the channels wherein marketing efforts should be put to derive the best value

2. Devising a strategy for treating customers bringing in different value

3. For understanding the future potential and value of customers

After you have determined CLV, you know that it is more important to build a relationship with the customer than ensuring today’s sale. Retention is very important and it is especially true for your most valued customers. This is because as compared to the cost of keeping an existing customer, it is five times more costly to attract a new customer.

These are the steps that you can follow to retain and maintain a long-term relationship with your customer -



Communication is the master key that can help businesses in maintaining excellent relationships with customers. You need to communicate with your customers as frequently as possible. Be transparent with your communication efforts and ensure you are comprehensive with the information you dole out. The moment you start taking them for granted is the moment you spoil the relationship.



Communication or engagement is always a two-way activity. It is equally important to listen to customers queries, complains and suggestions. It is essential to provide multiple feedback channels through which customers can reach out to you with their grievances. It is equally important to solve the grievances in a timely manner. Otherwise the customer can simply decide to move on to a competitor.



It is important to make your most valued customers feel valued. This will keep them happy and help you in retaining them over a longer term. You can achieve this by sending them personalized offers for their loyalty.

They can also be wished on special occasions like birthdays and anniversaries to show them how much you care. Sending them an email with personalized offers becomes all themore important if the customer has not visited you for quite a while.

By following the above steps you can keep your customers happy and ensure that they stay with you. This is because by increasing the retention rate by 5%, you can increase profit by 25% to 95%.

Having expert guidance can really help you to be more effective and efficient in customer retention. You can consult experts to help you in your efforts, implement feedback and support systems, and make your business more profitable with a handful of loyal customers.