Whether you’ve recently launched a new B2B eCommerce initiative or you’re looking to improve the performance of an existing online store, you’ll no doubt want to measure progress towards your goals against a series of KPIs.
On of the most important metrics to consider is Customer Lifetime Value (CLV), or the value a customer brings to your business over the length of their entire relationship with your company. In its simplest form, CLV is equivalent to the average order value, multiplied by the number of repeat sales, multiplied by the average period of customer retention.
In the B2B arena, maintaining long-term customer relationships is important because the cost of acquiring a new customer can be high. What’s more, building strong relationships your existing customers usually results in greater loyalty and more repeat purchases, which is why CLV is such a useful performance indicator for B2B companies.
You can measure the amount of net profit you want to generate from a customer during your relationship, and forecast the probability of repeat business with them. This will help you allocate resources more efficiently in order to deliver the best return on investment. It will also help you to tweak the features and functionality of your eCommerce platform, as well as inform strategic decisions in areas such as pricing, new business development, customer retention, and product development.
With CLV figures you can define customer segments and profile your customer base. When you’ve identified, for example, your top, middle, and lower spending customers, you can analyse these segments and create targeted sales and marketing messages aimed at customers in each group. In addition, many companies find that the top 20% of customers generates approximately 80% of their trading profits, which subsequently guides them on where customer service efforts and company resources would be best focused.
Segmenting your customers in this way presents an ideal opportunity to examine the challenges, pain-points and needs of your best customers so that you can look for similar characteristics when acquiring new clients. By the same token, you can also profile your lower spending clients to identify commonalities and assess whether these kinds of businesses are viable future customers – or whether you should concentrate efforts elsewhere. CLV stats help you make informed decisions about which types of customers fit best with your business model and modus operandi.
Minimising the cost of customer acquisition while maximising CLV is at the heart of optimising long-term profitability. However, CLV is not a measure of actual profit – it’s a metric that will help you forecast and plan around the financial benefits a specific customer will contribute to your business over a period of time. The real value of CLV in B2B eCommerce is in the insights it provides for developing the right marketing messaging and customer relationship management approach.
Image by: Evie Shaffer