How can customer lifetime value (CLV) be calculated using B2B data?
How can customer lifetime value (CLV) be calculated using B2B data?
Blog Article
Customer lifetime value is a very important metric to any business, especially B2B companies where relationships and transactions are long-term and usually quite complex. It basically helps companies understand a customer's total worth over the lifetime of their relationship. In this article, we look at some of the ways CLV could be calculated using B2B data effectively.
What is Customer Lifetime Value?
Customer Lifetime Value is the sum of revenue a business can expect from one customer account over the lifetime of the business relationship. In a B2B environment, this may encompass a variety of factors such as purchase frequency, average transaction value, and customer retention rate.
Importance of CLV in B2B
Understanding CLV is crucial for B2B companies owing to a number of reasons:
Resource Allocation:
Knowing the value of different customer segments could allow businesses to allocate their resources in a much more effective manner.
Marketing Strategies: CLV fits the B2B Database marketing activities better in order to pinpoint the high-value customers.
Customer Retention: Emphasis on CLV generally results in better customer satisfaction and a loyal customer base, too. How to Calculate CLV Using B2B Data Calculating CLV in a B2B context can be rendered in various ways, but the following formula provides a simple and easy approach:
1. Average Purchase Value
To determine the purchase value, divide the total revenue generated from a customer by the number of purchases made over any period of time. For example, if a customer generates revenue of $100,000 following five purchases, then his purchase value will be $20,000.
2. Purchase Frequency
Determine the frequency at which a customer has made a purchase over a certain period of time. If a customer commonly makes two purchases in one year, his purchase frequency is 2.
3. Customer Lifetime
Estimate how long it will take for customers to remain your customers. It can be done on a historical basis or benchmark basis. For example, if the average stay time of a customer is five years with your company, then this is your customer lifetime.