Until recently, businesses predominantly leaned on third-party cookies to shape their digital marketing strategies. However, as data privacy regulations have undergone significant evolution on a global scale, marketers are now compelled to embrace first-party data.

This shift empowers them to engage in more personalized, one-on-one conversations with both their current customers and potential prospects, ultimately paving the way for the enhancement of customer lifetime value.

A pivotal tool in this transformative journey is the Customer Data Platform (CDP), recognized as one of the foremost and purpose-built platforms for the ingestion and seamless integration of first-party data. Over the past few years, CDPs have been steadily gaining traction due to their unique ability to gather customer data from a multitude of isolated silos and create a unified customer profile from this data.

This newfound coherence equips organizations with the capability to centrally manage their first-party data while also affording users the autonomy to exert control over their personal information. In this context, customer data platform solutions empower businesses to perceive their customers as complete individuals, enabling organizations to harness data-driven insights effectively.

This, in turn, allows for the fine-tuning of content and the optimization of the customer experience by delivering highly pertinent offers and tailored messaging. The outcome is twofold: bolstered customer retention rate and the cultivation of brand advocates who significantly contribute to the augmentation of customer lifetime value.

What is Customer Lifetime Value?

Customer Lifetime Value, often abbreviated as CLV, signifies the worth of a customer to a company over the entire duration of their customer relationship. Grasping the value associated with each customer equips companies with the insights required to make astute and data-driven decisions about the allocation of budgets and resources.

Moreover, it provides a lens through which the profitability of marketing endeavors can be accurately gauged. Knowing CLV enables a company to focus on its most loyal and profitable customers, and the ones most likely to become advocates. Marketers who know a customer’s LTV have a better base of average customer lifespan and business intelligence to make decisions to maximize the effectiveness of their ad spending.

Customer Lifetime Value (LTV) is an important metric for businesses depending on subscription-based models and consistent monthly income streams. Since the pandemic, online retailers have seen a 90% growth in subscribers across all verticals but only an average LTV growth of 11% during 2020, according to Recharge Payments.

As an increasing number of individuals are embracing and experimenting with subscription services, and with the global subscription market expected to reach $478.2 billion by 2025, prioritizing customer retention and minimizing the turnover of new customers becomes crucial for businesses reliant on recurring revenue models.

How to Calculate Customer Lifetime Value?

Calculating Lifetime Value (LTV) can be done in different ways, depending on how your business works, how much you charge, and the kind of customers you have. Different customers might have different LTVs, especially if you have different pricing levels they can choose from.

If your business uses a subscription model, you can figure out LTV by taking the average money you expect to get from a customer each month and dividing it by the rate at which customers stop using your service (churn rate). For example, if you charge $250 per month, and 5% of customers stop using your service each month, then a new customer's LTV would be $5,000.

If your business doesn't use subscriptions, you can calculate LTV differently:

(How much money does a customer give you in a year) multiplied by (how many years they stay as your customer) minus (the total cost to acquire and serve them).

For example, if a customer spends $1,000 with you in a year, has been your customer for 5 years, and you spent $100 to get them as a customer, here's how you calculate their LTV:

$1,000 (yearly revenue from the customer) multiplied by 5 (the number of years they've been a customer) equals $5,000. Then you subtract the $100 you spent to get them, which equals $4,900, and that's their LTV.

How to Use Sitecore CDP to Enhance Customer Lifetime Value

For many companies, figuring out how much a customer is worth (known as LTV) can be tricky because customer information is scattered all over the place—like different data systems and ways they interact with the company, such as in stores, online, on the phone, through mobile apps, and more. Even social media and call centers play a role. Here are some ways a Customer Data Platform (CDP) can help boost customer lifetime value:

1.Bringing Everything Together: CDPs create a single profile for each customer that includes all their interactions, no matter where they happened. This makes it much easier to figure out how valuable they are.

2. Personalized Marketing: CDPs help personalize marketing. It's like talking directly to each customer based on what they like and need, which makes marketing work better.

3. Knowing Your Website Visitors: customer data platforms can collect info about people who visit your website or use your apps and create a complete picture of them.

4. Sorting Customers: You can use customer data to group people based on the different things they do and how they behave.

5. Smarter Decisions: Companies are using customer data platform to do smart stuff with data, like figuring out what customers want before they even know it.

What Can You Do with Sitecore CDP?

Generate audiences based on all your sources of first-party data.

Sync audiences across social, paid media platforms and email or campaign tools.

Create brilliant lookalike targeting based on successful customers to dramatically decrease paid media spend.

Predict what customers want based on current and historical behaviors.

Create segments using blended offline and online customer activity.

Integrate and activate customer data from anywhere.

In Sum

In today's world, customers expect companies to know them well. Knowing your customers as real people, not just groups or faceless targets, is what will help your company provide super personalized experiences that keep customers coming back and spending more money in the long run improving customer retention and loyalty.

Sitecore CDP empowers you to build tailored segments on a large scale, using any attributes provided by your organization. Achieve unified profiles, eliminate silos, boost personalization, and enrich overall customer satisfaction with Sitecore customer data platform solutions. If you want to know how it can help your business, then we can help. Reach out to us today.