Churn is a term used in the business world to describe how many customers leave a company or service. It is common to measure churn as a percentage, and a high churn rate can be a sign that a company is having trouble retaining customers.
Customer lifetime value, or CLV, is the total amount of money that a customer is expected to spend with a company during their lifetime as a customer. CLV is a measure of the long-term value of a customer and can be used by companies to plan marketing strategies and to make decisions about investments in customer relationships. By increasing CLV, companies can increase their profitability and create a stronger relationship with their customers.
How to calculate the churn rate
The churn rate can be calculated by dividing the number of customers who left the company or service during a certain period of time by the total number of customers present at the beginning of the period and multiplying the result by 100 to get the percentage.
Here is an example of how the churn rate can be calculated:
Number of customers at the beginning of the period: 100 Number of customers who left during the period: 20 Churn rate = (20/100) * 100 = 20%
It is important to note that the churn rate can vary depending on the time period being measured. For example, if you measure the churn rate over a longer period of time, it may be lower than if you measure it over a shorter period of time, as customers may be more likely to leave the company or service if they are not satisfied or if there are other factors influencing their decision to leave.
How to calculate CLV (customer lifetime value)
There are several ways to calculate customer lifetime value (CLV). A simple method is to use the following formula:
CLV = (average value per purchase) x (average number of purchases per year) x (average number of years the customer is loyal)
Average value per purchase is the average amount a customer spends per purchase, while average number of purchases per year is the average number of times a customer shops per year. Average years of customer loyalty is the expected lifetime of the customer as a customer of the company.
Here is an example of how CLV can be calculated using the formula above:
Average value per purchase: 200 SEK
Average number of purchases per year: 2
Average number of years of customer loyalty: 5
CLV = (SEK 200) x (2) x (5) = SEK 2000
It is important to note that these figures are estimates and that there may be large variations between different customers. CLV can also be calculated using more advanced methods that take into account additional factors such as customer satisfaction, competition and inflation
Why churn and CLV are important for my marketing
Customer lifetime value (CLV) provides companies with insights into the long-term value of a customer. By calculating CLV, companies can get an idea of how much money a customer is expected to spend with the company over their lifetime as a customer. This can help companies plan marketing strategies and make decisions about investments in customer relationships.
CLV can also be used to compare the value of different customers and to measure the impact of different marketing efforts. For example, companies can compare the CLV of customers who have received different offers or customers who have received different levels of support and service. In this way, the company can get an idea of which actions have the most positive effect on customer loyalty and value.
CLV can also be used to prioritize different customer segments and to make decisions about which customers should receive more or less attention and support. By focusing on increasing the CLV of key customer segments, companies can increase their profitability and build a stronger relationship with their customers.
