The CRM Affect on Customer Lifetime Value

A CRM affects one of the most insightful sales and marketing metrics around: customer lifetime value.

CRM and CLV: Customer Lifetime Value

Anyone can agree that the benefit of long-term business relationships is their value over time.  That’s why Customer Lifetime Value (CLV) metrics exist. The Marketing Accountability Standards Board (MASB) defines it as the “value of the future cash flows attributed to the customer during the entire relationship with the company.”

We like this statistic that illustrates what that really means and how CLV can impact businesses, especially SMBs. It’s called the 80/20 Rule.

The 80/20 Rule

According to the 80/20 Rule, 80 percent sales come from 20 percent of profitable customers, while 80 percent of costs come from the top 20 percent of unprofitable customers.

 

The 80-20 Rule and Customer Lifetime Value
Do you know about the 80/20 rule?

Imagine truly knowing who your most profitable and unprofitable types of customers? If you did, your spending decisions would be directly affected. This is exactly where a CRM comes into play. With the right CRM, you’ll spend money more productively to find, keep, and up-sell to the right customers.

Here’s why.

Through the Customer Lifetime Value (CLV) method, there are five questions a company aims to answer:

  1. Who are my best customers?
  2. How can I better serve customers and what that value adds up to?
  3. What is the value of increasing customer retention?
  4. How can I increase customer share?
  5. How can I improve net profit?

A CRM helps to answer those key questions above. That’s because it manages customer relationships while helping to define a way in which data is used to better decisions. In the end, everyone from sales teams to managers better spend their time with customers and prospects.

Think Big: Customer Lifetime Value

While CLV can be difficult to calculate and measure, it is recognized as an important and strategic way to think about customers. With a CRM in place, companies are further encouraged to shift attention from quarterly profits to the long-term status and health of their customer relationships. Determining CLV is a great way successfully project gross margins, profit margins, and customer acquisition costs.

Another big asset when combining the power of a CRM and the concept of CLV is how a CRM tool streamlines the sales process. Sales and marketing tasks are automated which increases efficiency when dealing with clients.  This includes logging data, saving emails or producing reports.  Efficiency is key to free up time and focus on quality customer interactions that lead to stronger relationships.

CRM and CLV: Focus on the Highest Potential Customers

To stay competitive, sales and marketing teams must focus on the right customers. CRM can help measure CLV by uncovering traits behind the deals you lose and win. It’s one thing to measure customer profit. That has always been done.  Game changing companies take on CLV to move a step further. CLV is a predictive analytic that is used to forecast and determine future value.  When there’s value in what your customers need and how you serve them, that changes the game.

How has your CRM helped retain your best customers?

 

Leave a Reply

Your email address will not be published. Required fields are marked *