No business wants to lose their clients before gaining their loyalty. And that’s where customer lifetime value (CLV) comes in. Measuring CLV can help you retain clients and build long-term relationships. In fact, about 25% of marketers rank CLV in their top five marketing metrics. 

But why does improving CLV matter? With CLV, you can assess and improve your outreach campaigns. For marketers whose focus is acquisition and the lifecycle, CLV identifies valuable customers and allows them to engage in relevant offers and incentives. In addition, it provides an iterative method for defining high-value customers and improving retention effort

This guide takes a deep dive into CLV and how you can calculate it, increase your customer ROI, and serve your customers better.

What Is Customer Lifetime Value?

Customer lifetime value (CLV) represents the total revenue a business can expect from an average customer throughout their entire relationship, not just from a single transaction. 

So, a high CLV means each customer will bring in more revenue for your business. 

It uses statistical methods and AI/ML algorithms to measure anticipated revenue based on several factors, including customer acquisition costs (CAC), sales and marketing expenses, operational costs, and production expenses.

Many businesses focus on short-term sales and fail to notice the long-term value their customers can generate. Acquiring new customers is essential, but maintaining and nurturing existing relationships is just as important.

There are two main types of CLV models:

• Historic CLV model: This model uses historic customer behavior to calculate value already generated. It relies on actual transactional data and helps assess existing relationships. For example, if you’ve purchased a $50 coffee from the same local café every week for the past five years, your customer lifetime value would be $13,000. Historic customer lifetime value is helpful for understanding the value an existing customer has brought to your business and for building customer profiles. However, it doesn't offer insight into future revenue when used alone.
• Predictive CLV model: Predictive customer lifetime value, on the other hand, is more forward-thinking. This model takes historical data and uses it to predict the length of a customer relationship and its future value. It uses data like average purchase frequency, customer demographics, and engagement metrics to estimate future revenue. While it can be a bit more complex, predictive CLV allows businesses to identify when and where to invest in customer loyalty for better long-term returns.

The main difference between these two CLV approaches is  their focus. Historic CLV looks at past data, while predictive CLV focuses on future insights. Businesses use historic CLV for performance reviews and customer segmentation, while predictive CLV helps guide future marketing and acquisition strategies.Nevertheless, both models are valuable. A combination of both provides businesses with a complete view of customer value, helping them make informed decisions for growth and retention. Why Is Customer Lifetime Value Important to Your Business? CLV helps you predict future revenue more accurately and refine your marketing strategies. By knowing how much profit a customer brings during their lifetime, you gain clarity on customer acquisition costs and other business decisions. It also helps identify opportunities to strengthen customer relationships. By analyzing factors like average order value (AOV) and purchasing frequency (PF), you can adjust strategies to improve customer retention and lifetime value. Here are just a few additional reasons why CLV is a key metric to track: 

1. Saves money

It costs five times less to retain loyal customers than to acquire new ones. Recent studies show that customer acquisition costs in sectors like e-commerce have risen by 222% over the past eight years. If you focus on improving the lifetime value of your current customers, you can drive growth without relying on expensive new customer acquisition.

2. Identify and prevent attrition

CLV helps identify signs of customer churn early. For example, if CLV drops, you might find that customers aren't renewing subscriptions. In this case, you could improve loyalty programs, offer better support, or run targeted marketing campaigns to bring them back. These actions will boost both CLV and revenue.

3. Find and replicate your best customers

Your top customers have a higher CLV. By analyzing their behavior, you can identify common traits. Look at factors like needs, income, and location. Once you understand what drives these customers, you can create a buyer persona and target similar prospects. This approach helps you predict CLV and future revenue with greater accuracy.

How Do You Calculate Customer Lifetime Value (CLV)?

Calculating CLV is straightforward. Simply multiply the average revenue per customer by their typical lifespan to get a solid estimate.

For example, if a customer spends $1,000 per year and remains with your business for five years, the CLV of this customer is $5,000.

However, you must also account for the costs of serving customers. For example, logistics, overheads in your physical location, contact center costs, support expenses, and so on.

Therefore, to get the true CLV, subtract these costs from the revenue the customer brings in. This gives you the net profit over their lifecycle.

The simplest formula for measuring customer lifetime value is:

‍CLV = Customer revenue per year x Duration of the relationship in years – Total costs of acquiring and serving the customer

‍This formula shows both the revenue and costs involved with each customer. It helps you decide where to invest in customer relationships and improve services to boost profits. For instance, you might focus on high-spending customers who require extra attention, rather than low-yield customers who demand significant investment.

The value of a customer depends on your priorities. A client who spends $10,000 per year for 10 years has a CLV of $100,000. A new client who spends $50,000 annually may have a higher CLV, even though they’ve been a customer for fewer years.

Other important factors to consider for your CLV calculation

For companies with complex products and models, it can get tricky when calculating customer lifetime value (CLV). 

In these situations, multiple factors influence the CLV formula, including churn rate and brand loyalty. Let’s take a closer look: 

• Average Purchase Value (APV): APV shows the average amount a customer spends each time they buy. To calculate it, divide total revenue by the number of purchases over a set period. APV helps you understand spending patterns and adjust your sales strategies.
• Churn Rate: Churn rate measures the percentage of customers who stop buying from you. To calculate churn, divide the number of lost customers by the total number at the start of the period and multiply by 100. Lower churn improves CLV.
• Customer Lifespan (CL): CL is the average time customers keep buying from you. Tracking this helps forecast sales and shows the value of retaining customers.
• Purchase Frequency (PF): This measures how often customers return to buy from you. To calculate PF, divide the total number of purchases by the number of unique customers in the chosen timeframe. A high PF means customers are loyal.
• Customer Profitability Score (CPS): CPS helps you focus on your most profitable customers. It calculates customer profitability by considering both revenue and associated costs, like customer acquisition and support costs.

How to Increase Customer Lifetime Value?

Here are 16 proven strategies to improve your customer loyalty and maximize their lifetime value for your business. 

1. Strengthen your onboarding process

Onboarding plays a vital role in driving customer success and supporting long-term business growth. During onboarding, the customer is exposed to your product for the first time. It is, therefore, the ideal moment to create a lasting impression. A strategic onboarding process encourages new users to return, thereby boosting their lifetime value to your business. The best onboarding practices vary by industry, customer needs, and goals. However, many businesses follow these key steps to engage users and improve adoption:

• Simplify onboarding with walkthrough guides, how-to videos, tutorials, and helpful content
• Personalize the experience to match the buyer persona
• Highlight the value of your product from the very beginning
• Experiment with different approaches and monitor customer health scores based on behavior

Choose an approach that is simple, clear, and encourages ongoing engagement.

2. Share valuable content to engage customers

Email marketing helps retain customers, but many businesses misuse it. Instead of sending meaningful content, they rely on automated drip campaigns that lack real value.Focus on emails that highlight the benefits of your product or service. For example:

• If you offer accounting services, send a report on how much money you saved clients.
• If you provide help desk software, share how many support tickets your clients resolved.
• If you sell eco-friendly products, tell customers how much carbon dioxide they reduced.

Every product or service offers value. Identify that value and communicate it clearly. An email showing real benefits creates stronger connections than a generic promotional message. Educational content also engages customers effectively. Personalize knowledge-sharing emails to address specific needs. Avoid sales pitches, focus on solving problems, and explain how your product or service helps.

3. Deliver excellent customer service

High-quality customer service helps businesses grow and retain customers. Conversely, poor service pushes customers to competitors, even if the product is great. Research shows that one-third of customers switch brands after one bad service experience.

Here are a few steps to provide outstanding customer service and boost retention:

• Support customers through multiple channels. This means you identify the channels your customers use most and train your team to use those platforms effectively.
• Respond quickly to customer questions. If 24/7 support isn’t possible, reduce response times as much as possible. Equip your team to handle requests promptly.
• Respond to social media complaints and questions quickly. Studies suggest that about 70% of customers expect a reply within 24 hours, and 76% value how quickly businesses respond to their needs. So, it’s important to assign someone to track and address social media interactions.
• Live chat that connects customers with support in real time as it increases conversions and allows remote support, enabling 24/7 availability.
• Create a self-service resource with articles, tutorials, and guides, as it reduces the pressure on your support team.
• Chatbots provide quick solutions and support around the clock. Configured well, they help customers resolve issues efficiently. 

4. Build relationships with your customers

Strong customer relationships drive business success, whereas weak relationships cause customer churn.Hence, you have to focus on creating meaningful relationships along the customer journey. Listen to the customers and appreciate their views. Be professional and proactive with their needs.

You can also create customer communities with forums, online groups, or events to build stronger connections. These platforms encourage connections and loyalty. Use them to gather feedback and address concerns. This will keep customers engaged and satisfied.

5. Gather customer feedback

We all know that happy customers stay loyal. When you want to grow your business without understanding their opinions, it becomes difficult to thrive. Hence, it’s important to collect actionable feedback to improve customer satisfaction and boost revenue. Here are a few steps to follow to improve customer satisfaction:

• Learn what matters most to your customers
• Focus on areas that increase satisfaction and reduce ineffective strategies
• Then, use this feedback to gauge how likely customers are to recommend your services
• Organize all feedback in one location and share it across teams
• Assign a team to track customer sentiment on social media, reviews, and other platforms

You can also send satisfaction surveys like NPS or CSAT. NPS is the most popular scoring metric, which asks customers how likely they are to recommend your service on a scale of 0 to 10. Based on their responses, they are grouped into Promoters (9-10), Passives (7-8), and Detractors (0-6). You can then subtract the percentage of Detractors from Promoters to calculate your NPS score.

NPS helps identify strengths and areas for improvement. A high NPS score means an increase in the customer lifetime value and reduced churn. In case of a low score, you can interpret NPS drivers using follow-up questions to learn what customers like or dislike.

You can adopt NPS software like ClearlyRated to collect and analyze feedback efficiently. The platform offers benchmarking with over a decade of data, allowing businesses to compare scores against industry standards. This helps identify pain points. 

For example, ClearlyRated’s 2023 Benchmarks for the IT services industry record an NPS of 42%, hinting at a slight drop from 2022 yet maintaining the standard the industry had maintained over the years.  

In 2021, the industry grew to 42%, up from 38% in 2020. It reached a record high in 2022 before slightly declining in 2023 but still remains above historical averages.

The platform also helps businesses gather, analyze, and use client feedback through custom surveys and NPS metrics. ClearlyRated’s analytics provide real-time insights into customer experience and satisfaction, improving survey delivery. After collecting feedback, users can take data-driven actions using the platform’s intuitive self-service tools. A ClearlyRated Customer Success Manager is available for support, but the self-service approach helps users tackle churn risks and solve issues independently.

6. Identify customer issues and solve them

Review customer feedback to find recurring complaints and common concerns. As you’re already aware, you can use NPS surveys to gather feedback and identify common pain points from both Detractors, customers who don’t like your brand, and Passives, customers who like your brand but lack the enthusiasm to become Promoters. 

If the feedback is unclear, group it into categories like "faster support responses" or "improve onboarding." Then, share the issues you’ve identified  with the relevant teams and provide them with the necessary data in a clear format. Solving these issues quickly improves customer satisfaction and loyalty.

For example, Simploy, a two-time winner of ClearlyRated’s Best of HR Services award, faced challenges in maintaining its service quality. Leaders lacked a structured way to gather client feedback beyond occasional conversations, often missing opportunities to address concerns proactively.

To bridge this gap, Simploy adopted ClearlyRated’s survey program, which allowed them to collect candid feedback and track customer sentiment. The platform provided valuable insights and helped the team validate their service model, improve client communication, and celebrate positive feedback internally.

After launching ClearlyRated surveys in 2021, Simploy achieved an NPS of 54.8%, surpassing the industry average of 46%. Their score soared to 77.8% in 2022 and climbed to 85.3% in 2023—more than 39 points above the industry benchmark.

7. Provide tailor-made customer experiences

Personalization drives customer satisfaction and boosts long-term spending on your business. If you offer personalization, it can benefit your business by:

• Delivering messages to B2B buyers at the right time through the best channel
• Creating a smoother onboarding process that feels welcoming and familiar
• Improving product experience with an intuitive UI, increasing customer satisfaction and the willingness to pay more
• Sending targeted in-app messages to encourage upgrades to higher-paid plans
• Simplifying cross-selling and upselling by understanding customer preferences
• Offering meaningful customer support that builds real relationships with clients

You can use personalization by researching customer data, analyzing feedback, and acting on insights from tools like NPS surveys. 

8. Make your product roadmap accessible

Every roadmap includes objectives that meet team and customer needs. It acts as both an internal guide and a commitment to customer goals. Sharing this roadmap internally and externally is valuable.When you’re updating the roadmaps internally, make it a habit to consider the customer feedback. Doing so, improves customer lifetime value and creates tailored solutions. Similarly, when you’re sharing it externally, focus on customer benefits. Avoid specific dates unless certain, and provide estimates instead. Underpromise and overdeliver for the best results.

9. Encourage your customers to choose annual billing cycles

Encourage customers to opt for annual billing to increase their value to your business. In fact, customers who commit to longer terms generate more predictable revenue compared to those who leave after a month or two. Short-term customers fail to recover their acquisition costs. Annual billing reduces the churn rate with a full-year commitment. Thus, it has an increased average lifetime value compared to monthly plans and gives a longer time to display the value proposition of your product. Prepaid revenue also provides the means to support product development and fuel business growth. To prevent chargebacks, consider reaching out to customers before the renewal deadline, as some may forget about their subscriptions. Offering incentives can further encourage annual payments. Discounts of 10-20% or free months are effective ways to attract customers to longer billing cycles. Providing flexible subscription options—such as tiered plans, pay-as-you-go models, customizable plans, and group packages—also makes the shift to annual billing more appealing. 

10. Increase revenue through cross-selling and upselling

Upselling and cross-selling are effective ways to boost your customer lifetime value. If you offer multiple products or services, upselling can increase the amount customers spend.

• Upselling involves offering a higher-priced version of a product or service. For example, a customer may upgrade from a basic plan to a premium one. 
• Cross-selling involves selling complementary products or services. For example, if a customer buys a website domain, offer them web hosting or privacy protection.

11. Set up a dunning management system

A dunning management system automatically retries failed payments and sends renewal notifications when a charge is declined. It helps prevent customer churn caused by frustration.If you’re using a credit card to make payments, it can sometimes fail for various reasons, including:

• Credit card limits
• Restrictive corporate policies
• Expired or stolen cards

Freezing accounts too soon can harm the customer experience. However, being too lenient can lead to lost revenue. In these cases, a dunning management system reduces churn and improves CLV by retrying charges before closing accounts.

12. Run loyalty programs

Loyalty programs offer incentives to encourage repeat business. They help retain customers and increase their lifetime value.

Some of the popular loyalty programs include offering discounts, rewards, or creating points systems for purchases. On the other hand, consider referral programs, like Airbnb's, where customers earn bonuses for referring friends. You can also create membership programs, like Amazon Prime does,  offering perks like faster delivery and entertainment services.

Top promoters can be rewarded with special recognition, exclusive services, or personalized notes. These efforts build strong, lasting customer relationships.

13. Increase your pricing

As your business grows, you may need to increase your pricing for various reasons. You might change your customer profile, add new features, or realize the old prices are no longer profitable. Many businesses under-price their services when they start.

However, when increasing prices, handle existing customers carefully to avoid surprise or frustration. For example, Zendesk's 2010 price hike, where the company increased its monthly fees by almost 300%, upset many customers. 

One solution is grandfathered pricing, where you can keep the original price for existing customers and introduce increased  prices for new customers. You can also offer options, such as higher prices with a discount or a downgraded plan to maintain the original price. This approach helps you raise profits while giving your customers time to adjust.

14. Guarantee satisfaction to your customers

A satisfaction guarantee shows customers you care about their happiness and product quality. It reduces the perceived risk of purchasing and encourages first-time buyers and loyalty.

Software companies in the B2B industry build trust with proof-of-concept trials or performance-based contracts. Salesforce, for example, gives free trials for its CRM platform so that a business can try out its functionality before committing to it. It helps convert at a higher rate and builds confidence in the product's value.

Beyond driving loyalty, satisfaction guarantees provide valuable insights. Requested refunds or contract terminations reveal pain points and allow companies to fine-tune their products. 

In fact, ClearlyRated’s customer satisfaction score is 4.8/5. This indicates that the company ensures its satisfaction and always meets customer expectations. Such high ratings reflect ClearlyRated's commitment to delivering quality service and building trust.

15. Build strategic partnerships

Strategic partnerships expand your reach and improve your offerings. They help create a more integrated product or service that attracts customers. Moreover, partnerships also help share costs and reduce risks.

To make partnerships successful, focus on clear communication, shared goals, and mutual benefits. Choose partners who align with your values. Building trust and cooperation increases customer lifetime value.

16. Remember to make customer-centricity a core culture rather than a one-off transaction

Putting customers at the center of your business is essential for building strong relationships. Companies that focus on customers’ experiences increase lifetime value and reduce turnover.

However, building a customer-centric organization takes commitment. To do so, prioritize customer values and adopt a customer-focused mindset throughout the company—an approach that impacts your bottom line directly.

Additionally, companies must focus on creating positive experiences to improve customer perception. Every part of your organization, from the back office to the front line, must deliver value. 

CLV in Retention vs. Acquisition

Customer lifetime value (CLV) plays a crucial role in balancing retention and acquisition efforts. While most businesses focus on the latter, the truth is, retaining customers is more important than constantly acquiring new ones. Let's explore why retention can outperform acquisition, and how balancing both strategies can fuel growth.

Why retention often outperforms acquisition

Retention focuses on nurturing existing relationships, which often yields better results. We’ve said it before, and we’re saying it again, that it costs less to keep a customer than to acquire a new one. 

Retained customers are more likely to spend more and refer others, increasing their lifetime value. By investing in retention strategies, businesses can create a more stable revenue stream and reduce marketing costs over time.

Balancing both for optimal growth

While retention provides strong long-term value, acquisition is essential for growth. A healthy balance between the two ensures that businesses continue to expand their customer base while nurturing loyal clients. 

Acquiring new customers brings in fresh revenue, but without retention, businesses risk losing valuable clients. Finding the right mix will help drive sustainable growth.

Case Study: SaaS Company Redefining Customer Retention

Synergis, a workforce solutions partner, prioritizes its consultants and clients in everything it does. From recruiters to leadership, everyone strives to deliver exceptional service.

Before working with ClearlyRated, Synergis lacked a consistent method for obtaining direct feedback from clients and consultants. To address this, Synergis turned to ClearlyRated for the tools and guidance needed to gather this valuable feedback—and discovered more than they expected. “The industry benchmarking that ClearlyRated provides has been immensely helpful, helping us stay agile and competitive as our industry evolves,” explains Jeff Fairfax, VP, East, Synergis.

With ClearlyRated’s support, Synergis achieved impressive response rates, an outstanding net promoter score® (NPS), and the 10-Year Diamond Best of Staffing award for both client and talent satisfaction. As a result, the IT, engineering, marketing, and sales recruitment firm has grown its revenue, expanded its customer base, and increased diversity within its workforce.

‍“We’re proud of those stats, and we know our growth is thanks to our client- and consultant-first culture. So, we won’t lose sight of the most important thing: Delivering great service to our consultants and our clients,” Jeff says.

Discover how Synergis earned the Best of Staffing award for 10 years straight.

Execute Your Customer Lifetime Value Analysis with ClearlyRated

In the end, you don’t need complex calculations. All you need to do is focus on the value a customer brings over their lifetime. By understanding customer experience and measuring feedback at key touchpoints, you can improve the drivers of customer lifetime value.

‍ClearlyRated emphasizes the importance of customer experience as a driver of repeat business. By focusing on customer experience, businesses can enhance lifetime value and build long-term loyalty.

The platform enables users to track customer acquisition costs and other key metrics alongside satisfaction survey results, all within a unified dashboard. Additionally, a straightforward one-question survey provides actionable insights into customer and user opinions, supporting sustainable growth.So, what are you waiting for? Book a free demo today!