The Importance of Measuring Your Average Customer Lifetime Value

Customer retention has the greatest effect on the amount of revenue a company receives. This means that the most pressing challenge for any subscription-based business is keeping their customers subscribed to their services. If you’re running an enterprise that follows the subscription business model, you should be aware of the best practices for keeping your customers.

Customer retention

There are several metrics that can be used for measuring customer retention. For a subscription-based business, the average customer lifetime value or ACLV is one of the most important metrics. What constitutes this metric, and how exactly is it calculated?

The ACLV

The average customer lifetime value is the average amount of revenue a company can get from each customer. To compute for the ACLV, you only need to multiply the average customer duration with the monthly charge rate. Once the ACLV has been determined, it can now be compared to the average cost spent on acquiring new customers.

If the average cost of acquisition is greater than the ACLV, it means your company is spending more on getting new customers than actually profiting from them. On the other hand, if the ACLV is higher, it means you get more value from each one of your customers. A high ACLV means more revenue, and more revenue means more resources for your company to acquire even more customers.

Keeping Track of the ACLV

The more often you keep track of your ACLV, the more control you have over your company’s customer retention strategies. However, it’s not as simple as it seems. While the formula for determining the ACLV is straightforward, getting the values used to calculate it isn’t always easy. For example, the average customer duration changes on a monthly basis, and different customers may have signed up for different subscriptions with varying rates and start/end dates. This makes tracking ACLV at shorter intervals very difficult.

To help keep statistics accurate all the time, your company can take full advantage of advanced customer retention solutions that automatically update information on values required to compute for the ACLV. This means you can always get an accurate measurement of the ACLV any time you need, keeping you from making decisions based on outdated information.

Using the ACLV as Basis for Improving Customer Retention

With the most recent measurements of ACLV as your guide, you can take key steps to improve your company’s customer retention rates. Here are a few tips on how to maximize customer retention and, in turn, your revenue.

1. Give customers more reason to stay

The longer your customers stay subscribed to your business, the better your company’s ACLV will be. Loyalty rewards and other minor incentives can go a long way in keeping your customer interested in your service. Of course, having consistent, high-quality service in itself is also a good incentive for customers to keep their subscriptions.

2. Look for weak points

If your previous ACLV calculations are indicating a negative trend, you need to find weak points in your services. Common problems include lack of dependable payment options, slow response times to customer issues, and delayed or inconsistent billing. The sooner your company can address these issues, the lower the risks of customers terminating their subscriptions.

3. Automate the billing process

Automating the billing and payment process takes a lot of the burden off you and your customer when it comes to monthly payments. This change alone can cause a significant improvement in customer satisfaction, which is essential to having good customer retention rates.

As with any business, keeping your customers happy is key to being successful, and the ACLV can reflect how much your company has profited from happy, long-running customers. The more information you have about your revenue and customer retention, the easier it is for your company to adapt and achieve the best results.

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