What is customer lifetime value? Lifetime Value is cumulative profitability of a customer or segment. It is calculated by subtracting costs from revenue, for the duration of a customer’s relationship with your brand. This sounds simple, but it gets complicated when you try to be complete (especially in variable plus fixed costs). There are 2 solutions to this: (1) create a dashboard with the 4 CXM levers in lifetime value, shown below, and (2) start simply with the data you have ready access to, including footnotes for your audience to understand the source, scope, and limitations of your data. Both of these solutions make it more likely that your audience will engage, take action, and help you fine-tune your sources and calculation.

customer lifetime value index

4 CXM levers in customer lifetime value:

1. Revenue:

  • Increase market share (expand referrals).
  • Increase spending per customer (upsell, cross-sell).
  • Expand market size (business models).
  • Shorten time to money in the bank (sales velocity).

2. Relationship length:

  • Turn-around churn (service recovery).
  • Motivate ongoing buying (promotions, loyalty).

3. Relationship strength:

  • Be the preferred brand (loyalty indexes, Customer Success, life cycle management, ease of business).

4. Costs: 

  • Stop root causes of customer issues (annuities).
  • Drive efficiencies per CX insights (data mining, value mapping).
  • Prevent issues for customers (standards).
  • Automate mundane efforts (digitalization).

Smart CX costs are YOUR untapped CX ROI opportunity:

  1. Always express customer data as a percentage of costs or revenue or profit.
  2. Encourage managers to base daily decisions on lifetime value.
  3. Provide CX insights for every cost containment effort and growth effort.
  4. Focus management on XM annuities to avoid skimpflation.
  5. Fine-tune alignment of processes and policies to customer preferences: allow ongoing feedback loops.
  6. Share customer comments with every work group as the basis for their performance standards: right the first time from customers’ viewpoint.

These 6 steps for CX cost management improve relationship strength, relationship length, and revenue growth: customer lifetime value.

See also: Customer Experience Playbook

Customer Lifetime Value Prioritizes Customer Experience Management

This is a glimpse into what you gain from ClearAction Experience Leadership Mastery.