Customer Lifetime Value (LTV) is one of the most significant indicators for a business success. Why so? Customer acquisition costs will soon outweigh revenue if consumers aren’t encouraged to return, as the cost of advertising increases.
It is well recognised that brand loyalty programs assist digital organizations in achieving various objectives, including obtaining the most significant number of consumers, increasing the lifetime value of each customer, and retaining existing customers.
What Is Customer Lifetime Value?
This is the average amount of money a consumer will spend with your brand throughout their lifetime, or “lifetime value” (LTV).
When a customer stays with you for an extended period, their lifetime value (LTV) rises. The most valued consumers are those who buy frequently and spend a lot of money.
To calculate lifetime value, you must consider a customer’s potential after the initial sale.
Why Is LTV Important?
You need to know how much income you can expect from a customer throughout their lifetime to determine how profitable it is to acquire new customers. When you include your sales and marketing costs, it’s a crucial aspect in evaluating whether or not you’ll be profitable.
Ways To Increase Your Customer’s Lifetime Value
Customer lifetime value can be increased by providing customers with a compelling reason to spend more.
This is where customer loyalty programs come in.
The relationship between customer loyalty and lifetime value is substantial. Customers that spend the most money and remain loyal to your brand are your most valuable assets.
You can encourage customers to stay loyal to your brand by developing an incentive-based loyalty programme. Rewards, special offers, and other opportunities only available to your customers can encourage them to return to your brand over the competition.
Increased Customer Loyalty Can Be Achieved Through A Variety Of Means
A customer’s lifetime value can be increased in two ways by loyalty programmes:
- Boost the amount they spend
- Increase the frequency with which people purchase
Spending increases as a result of best customer loyalty programmes
Loyalty programme members have been shown to contribute between 12 and 18% more revenue than non-participating consumers, which increases their overall lifetime value. According to data from Amazon’s Prime reward programme, people who are members spend $500 more annually than those who are not.
The value of each transaction is enhanced for both you and the consumer by delivering incentives that can only be obtained by making a certain number of purchases.
This is comparable to how many online stores provide complimentary shipping once a minimum of $50 has been added to the cart. In most cases, we’ll include the extra item to hit the $50 threshold and be eligible for the reward.
What your consumers see as valuable, whether it’s points, gift cards, or swag, can help boost up-selling and cross-selling. For example, free consultation or a gift with an upgrade to a monthly membership can be something you consider offering to customers who spend $75 or more with you.
Recurring Purchases Are The Most Popular Way To Describe “Loyal Behavior”
Recurring sales are essential to growing a customer’s lifetime value and making money, even though customers prefer to be rewarded for more than simply one-time purchases. With brand loyalty programs, repeat purchases are generally made by exploiting loss aversion and switching costs.
Customers’ willingness to stay connected with your company over the long term determines their higher lifetime value. Customer loyalty programs can create an emotional connection between a business and its customers, but we can’t overlook the obvious ways to encourage higher-value purchases and more frequent transactions.
A sense of belonging is created when customers are welcomed into the best customer loyalty programme. Customer advocacy and engagement naturally increase as you continue to make your consumers feel unique (via appropriate rewards, access, etc.), making you more than just a place where they spend money.