How Do I Use CLV?
It’s not knowing your CLV that drives profit, it’s using it. Here’s 3 ways to get started using CLV to increase the profit in your food business:
1. Customer Satisfaction: if you track changes to your CLV over time, you will have a good indication of if customers are happy with your product and service. For example, if your CLV is steadily decreasing, that might be an indication that customers are spending less or coming back less often. If that’s the case, you should dig into the data on each customer segment to see if it’s a problem across the board or if it’s one segment in particular that is the least satisfied.
It’s not knowing your CLV that drives profit, it’s using it.
2. Marketing Spend: this is the most popular use of CLV; once you know how much each customer is worth to you, you know how much you can afford to spend to acquire them (this is known as CAC or customer acquisition cost). In general, you can spend up to the CLV and still consider each additional customer as valuable to your business.
Golden Rule: CAC < CLV
3. Marketing Effectiveness: there is nothing to say that the customers you attract in the future will be the same, or worth the same, as the customers you have attracted in the past. If you notice CLV going down over time, this could be an indication that new customers are less valuable than previous customers. This happens most often when changes are made to marketing strategy or marketing spend and isn’t always a bad thing, but you’ll want to adjust your marketing budget based on the value of the new customers (see the golden rule above).