Then, the business comes into play and depending on your bandwidth, the time you must work on your business must be used efficiently. Examining Two Types Of CLV There are two types of CLV, historic and predictive: Historic – This type refers to the information you currently know about your existing clients and the data you can analyze, including year-to-date sales, average order size, number of orders, profit, average profit per order, average gross profit and length of time of relationship. Predictive – These are numbers you can project, based on the historical data and your experience with the client to extrapolate the long-term, projected valuation. For instance, if a company, in the first six months, generates $30,000 in sales, one could speculate the client will generate $60,000 over the course of the year. If your clients stay with your company an average of eight years, you could extrapolate the client would potentially be worth $480,000. Knowing this information will better assess acquisition costs. The CLV Formula And Methods For Improvement Below are some suggested KPIs (Key Performance Indicators) to track andmeasure for continuing to assess the value of your clients. AOV – Average Order Value is sales divided by number of orders. A couple of ways to improve AOV is to use suggestive selling: packaging, kitting, fulfillment, company stores, print management, programs, awards and accessorizing. PF – Purchase Frequency means the number of orders placed by a client over a period of time. Improvement methods include deep dive reports that look at the prior year’s purchases. Also, send reminders, create prototypes, and virtual, speculative and overrun samples. GPM – Gross Profit Margin is figured with this calculation: Total sales - Cost of Goods = Gross Margin. Methods to improve GPM include looking at additional value-added services. Stop looking at promotional codes and, instead, get paid for your creativity, valueadded accessorizing, packaging, kitting, fulfillment and creative marketing campaigns. CR – Churn Rate means the length of time a client remains active with your company. Improve CR by staying engaged with clients, creating a relevant and consistent touch program, creating an ongoing positive client experience, suggestive selling and forwarding information other than sales-relatedmaterial that fosters engagement. CAC – Client Acquisition Cost is the cost of getting a client to buy your goods and services. To improve the CAC, manage your marketing efforts, know your costs, know your personal hourly rate, track expenditures, focus on the right clients that are high-volume and high profit, and scale your marketing efforts. The key is to reduce costs here, without sacrificing the quality of the messaging and your engagement efforts. What To Do With This Information You can improve your CLV by classifying and segmenting your current clients to determine who your ideal clients are when prospecting and only target those who fit your criteria. When deciding on your specific marketing efforts, make sure they are scalable, use a variety of marketing channels and develop new internal strategies KPIs (Key Performance Indicators) AOV - Average Order Value Sales / Number of Orders PF - Purchase Frequency Number of Orders vs. Period of Time GPM - Gross Profit Margin Total Sales - Cost of Goods CR - Churn Rate Total Time Client is Active with Company CAC - Client Acquisition Cost Add Up Costs Incurred Getting Client to Buy | DECEMBER 2021 | 55 GROW
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