Not all customers are created equally. Nor do they have identical buying habits and preferences. While some customers transact with your business and purchase a particular product once or twice, others become customers for life. Yet even lifetime customers are differentiated from one another, mainly through the amount of business they bring to the company. Some value is easily measured, while other is not. In order to determine how much each of your customers are worth to your company, you need to have at least a basic knowledge of Customer Lifetime Value (“CLV”). CLV is also valuable in measuring the effectiveness of a marketing or promotional campaign, or a customer loyalty program that uses bulk gift cards and other promotional items.
Understanding CLV
In business marketing, Customer Lifetime Value, or CLV, is an approximation of the net profit obtained by a business from its lifetime relationship with a customer. Simply put, CLV is how much a customer is worth to your company. There are many tools available that measure CLV, although the percentage can be determined manually by factoring in your annual marketing expense, annual number of customers, the number of purchases a customer makes within a specific period and the number of referrals — direct or indirect — your customer makes.
Although you may be inclined to pinpoint your facility as your biggest business asset, marketing experts are quick to say otherwise. For them, it’s the customers that comprise the biggest share of any company’s asset pie. This fact alone makes CLV critical for maintaining business stability and driving long-term growth.
Why CLV is Critical to Clubs
In club marketing, CLV is especially important. We all know the value an extra month or year of membership dues brings to the bottom line. Depending on your cost to acquire a new customer and your profit margin, it can take six to 12 months for a new customer to break even on their acquisition cost. So, if your average membership duration is only nine months, you are simply breaking even. If you can extend your average membership duration by three months, the impact on your bottom line is extraordinary!
In the club business, loyalty is extremely highly correlated with club usage. If your members don’t use your club, they will not continue paying dues. On the flip side, if your members are frequent users, they will continue to pay dues. Accordingly, using promotions to encourage your members to use your club will yield the greatest CLV benefits.
Designing Promotions for Customer Loyalty
Improving CLV can be done through effective customer retention programs that keep your customers right where they are — with you. A well-planned customer rewards program will be helpful in engaging your customers and creating long-term loyalty. The right offerings and promotions, such as a promotional gift cards, can go a long way in making your clients feel appreciated.
In the same way that your business needs to rise above the competition, the most loyal of your customers will also stand out from the rest. Clearly, your most loyal customers are the ones who give your company the best Customer Lifetime Value. While there are many factors that influence a desirable CLV, promotional programs such as gift card promotions, can help drive Customer Lifetime Value and create loyal customers for a lifetime.
Tim Rohner is the VP of Sales and Marketing for Mpell Promotions, “Compelling Promotions for the Fitness Industry.”
