Why Customer Value Optimization Is Important For Your Business?

Why Customer Value Optimization Is Important For Your Business?
Business / Digital Marketing / Miscellaneous

Why Customer Value Optimization Is Important For Your Business?

The usual objective of a business is to generate leads, which in simple words is to grab the attention of the target audience. Now, let’s say, you gear up your marketing efforts, garner the desired attention from the customers you are targeting, and invest in your offerings, causing your sales to boost. That’s great for you and your business, but what happens after that one time of a customer purchasing your products/services? What follows in the customer value journey? Is that one-time purchase enough?

Of course not! The success of any business is in the continuity of sales, brand visibility, customer retention, and engagement; all of which adds up to uninterrupted growth. In today’s competitive business environment what you need to succeed and flourish is to establish a rock-solid brand value, fostered by customer value optimization.

Introducing Customer Value Optimization (CVO)

Don’t get it confused with conversion rate optimization! CVO deals with more than just customer retention. It will ensure that you can augment the lifetime value of the customer and leverage the same to create better marketing strategies that propel business growth.

Customer value optimization can be defined as a framework that focuses on enhancing customer lifetime value for business growth. The idea is to conduct a thorough assessment of the customer database and follow up by using the generated insights to enhance the quality of customer experience. The customer experience can be improved by tweaking the acquisition, conversion, and retention tactics, as per the insights. This process helps in creating an exceptional customer journey, increasing the business ROI of applied digital marketing undertakings.

Why use CVO? It gives you all relevant information using which you can strategize, how to;

  • Increase repeat customers, and;
  • Create a loyal customer base.

This helps you in quantifying the customer value journey and boosting the sales of your business. The CVO is continued all through the customer life cycle, which augments brand recognition and brand loyalty, giving you loyal customers for life.

Understanding the Concept of Customer Lifetime Value (CLV)

To understand the full scope of customer value optimization, you also need to have a clear idea regarding customer lifetime value, because that holds the key to a successful CVO. Let’s do a quick Q&A to give you more clarity.

What is customer value?

The concept of customer value was first introduced by Peter Drucker, an influential thinker specializing in management. He explained customer value as the revenue generated by an individual customer in their lifetime. The data reflects the profitability of a business and the caliber of the management.

What is customer lifetime value?

CLV is a predictive model that helps one to project the prospective profit generated through a customer, throughout their engagement with the brand. You will be able to determine how much profit you are generating from the existing customers and the new ones and whether it would be profitable to invest in acquiring new customers. Let’s break it down for you.

CLV = customer lifetime value x profit margin

  • Lifetime value: It is the average order value of the customers within a given timeline multiplied by the purchase cycle and the average time in months, years, or weeks.
  • Profit margin: It is the total revenue over a given timeline minus the total of the COGS (cost of goods sold), overhead costs, marketing, and administrative expenses multiplied by 100.

To summarize, customer lifetime value is the cumulative analysis of the customer’s worth and the investment that you should put into the acquisition of new customers.

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How to Strategies Customer Value Optimization To Boost Business ROI?

How to Strategies Customer Value Optimization To Boost Business ROI?

How to calculate customer lifetime value?

There are two ways that you can calculate the customer lifetime value

  • Historical CLV
  • Predictive CLV

Historical CLV can be calculated through customer lifetime value x profit margin, one we already explained above.

The predictive CLV, on the other hand, can be calculated as CLV x monthly retention rate + monthly discount rate monthly retention rate.

Significance of Customer Value Optimization for Businesses

Now, coming to the part where we will explain why CVO should be the staple of any business! You might be invested in conversion rate optimization, thinking it would be enough to strategize your business growth, but that’s far from the reality. Given the present business climate, you need to back up your CRO efforts with a comprehensive CVO for long-term benefits and to guarantee uninterrupted business growth.

The significance of customer value optimization for a business can be explained in the following points:

  • It generates better insights that give you a clear vision of customer engagement and the customer value funnel, enabling you to create data-driven strategies.
  • You can develop a well-optimized customer experience for existing and new customers.
  • Businesses often end up losing money while investing in unnecessary customer acquisition; CVO prevents that from happening.
  • It helps a business to identify the customers who are most valuable to the brand.
  • The insights derived from CVO helps in designing the better ad and promotional campaigns, streamlining the marketing budget.
  • You can determine your best-selling products or most in-demand services, leading to inventory optimization.

Customer value optimization helps you shift to customer-centric strategy building for augmented conversion and retention rate.

But how does one optimize the customer value? You can apply the following strategies:

  • Identification of the target audience;
  • Using appropriate advertising channels;
  • Utilize a lead magnet;
  • Share the reviews of your products;
  • Offer live chat and assistance to clients and more.

On a Concluding Note

The consumer/customer behavior is not static; it keeps evolving as per the current market conditions. Customer Value Optimization can tap into those transitions and generate a gold mine of insight, taking your business to the pinnacle of success.

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