Businesses that don’t understand the value of their customers can’t do a good job of valuing their customers. And companies that don’t value their customers can’t expect to keep them around for long. The value of a loyal customer, sometimes shortened as VLC, is determined by the level of satisfaction your customers feel with what they receive from your business. When a customer feels satisfied in their relationship with your business, they are more likely to continue purchasing from you. In this article, we’re going to take a deep dive into the question, “What is the average value of a loyal customer?”
What is customer value?
The value of a customer is a metric that helps quantify how much each client contributes to your business. While the exact measurement of this metric can vary from company to company, the most common approach is to use the gross profit a customer-generated in their time with your company and compare that with the cost of acquiring them.
For instance, if you obtained a new customer for £100 and generated £50 worth of profit for your business during their time as a client, you would consider that customer “worth” £50.
Customers don’t have the same value. While some customers are happy making one-time purchases, you have other customers who will stick with your brand and make repeat purchases repeatedly. These loyal customers are likely to spend 25% more than non-loyal customers. In addition, these loyal customers provide a vast majority of your profits.
What is the average value of a loyal customer (VLC?)
The average value of a loyal customer (VLC) is the average revenue generated by a customer over time. You can measure the value of their loyalty by looking at the amount of money you can expect to make from each customer over a certain period of time. This will depend on your business and the customer’s level of satisfaction with what they get from your business.
As we’ve discussed before, it’s often more cost-effective to retain existing customers than to get new ones. But how do you know if you’re spending too much money on customer retention versus acquisition? The answer is to measure the value of your loyal customers.
Customer Lifetime Value
Customer lifetime value measures the net profit attributed to the entire future relationship with a customer. It’s the total amount of money you expect to get from someone based on all of their purchases when they are your customer. It’s not just how much money they spend now. It’s how much they’re going to spend over the years!
Let’s say that on average, there are four purchases a year in our store, and each order costs £20. If a customer stays with you for three years, then their customer lifetime value would be £240 (=£20 × 4 × 3).
Once you know that, you can compare it with how much you’re spending on retaining them and see if you need to do more or less. If it turns out that you’re losing customers who would have been retained by doing more to keep them, then your strategy is off the mark. You should spend less money acquiring new customers and more on keeping the ones you already have.
What are the benefits of calculating the average value of a loyal customer VLC
You can run better customer loyalty programs and promotions
You can run better customer loyalty programs and promotions. When you know how much money a repeat customer is worth, you can make informed decisions about what to offer them and how much it’s worth spending to get their attention. Otherwise, you might end up spending more than they are actually worth!
It gives your marketing team a clear goal to work towards
You’ll be able to see how many new customers you need to meet your revenue goals and make sure that everyone on the team is on the same page about what those goals are and how they can be achieved. For example, if you know that each of your loyal customers spends £100 in an average month, and you want to make £10,000 in revenue this year, you’ll be able to see how many new customers you need to meet your revenue goals.
It helps you design strategies that target the best customers
When you know who your best customers are, it can help your marketing team to design strategies that will appeal to them. For example, if you find out that your loyal customers tend to buy more often than new ones do not, this could mean there’s something wrong with how they’re treating new customers when they first arrive at your website or storefront.
Shows you where improvements can be made
It allows you to identify areas for improvement, and see exactly how much money a typical customer spends with your company over a given period. It can also give you insight into what kind of customers are worth targeting in order to grow your business (i.e., which ones have high lifetime values).
If the value is too low, you can identify areas for improvement (e.g., increasing customer retention rates or raising prices). This will help you make better decisions about where to invest your resources in order to maximize profit potential while minimizing risk exposure.
Better revenue forecasting
If you know how much money comes in from each customer in an average month or quarter, you can extrapolate that data to predict future revenue. This is particularly useful if you’re considering adding a new product line or making a change in pricing strategy. Knowing how much money comes from each customer will help you make informed decisions about what’s going to be profitable for your company.
Cross-selling means selling your current customers additional products or services that go hand-in-hand with what they’ve already purchased. If you know what type of people have bought from you before, and how much they’ve spent, you’ll have better information about who to target when you’re trying to cross-sell other products or services.
You can use this information to create more personalised offers for your existing customers. Send them incentives for products that are related to what they’ve purchased in the past, or offer them discounts on products that are similar to what they’ve bought in the past.
Perx is a customer loyalty platform that can be used by any business. If you’re looking to create reward-driven loyalty models at your company, we can help. Get in touch today