Customer Lifetime Value

Customer lifetime value (CLV) measures how valuable a customer has been to your company or brand.

CLV is an important historical measurement that applies to individual customers and also to groups of customers that fit various segment profiles. For example, a customer who buys a pair of $40 pants every year for five years has a CLV of $200. A segment that contains thousands of customers who buy pants might have a CLV of $200,000.

CLV can be more complex to measure when a company has millions of customers, multiple brands, storefronts and websites and applications, and hundreds (or even thousands) of individual product items.

How do you measure how valuable customers will be in the future? Amperity uses predictive modeling to identify which customers are most likely (and least likely) to purchase within the next calendar year.

About predictive models for CLV

Predictive modeling for customer lifetime value is comprised of several component predictions:

Predicted probability of transaction

Predicted probability of transaction represents the likelihood that a customer will return to make another purchase during the next 365 days.

For example, a score of 0.6 indicates a 60% chance that a customer will return and make purchase.

Note

Predicted probability of transaction is also known as p(return).

Predicted average order revenue

Predicted average order revenue represents the average value of each order a customer is predicted to make if they return to make another purchase during the next 365 days.

Predicted order frequency

Predicted order frequency represents the number of orders a customer is predicted to make if they return to make another purchase during the next 365 days.

About predicted CLV

Predicted customer lifetime value represents the total value of all orders a customer is predicted to make if they return to make another purchase during the next 365 days.

Predicted customer lifetime value (predicted CLV) sorts customers into the following value tiers:

  • Platinum The top 1% of all customers.

  • Gold 2-5%.

  • Silver 6-10%.

  • Bronze 11-25%.

  • Medium 26-50%.

  • Low The bottom 50% of all customers.

Build segments that capture your most valuable customers, and then build segments that align active customers within those tiers to the right product recommendations and offers.

Building segments for customer lifetime value with Amperity.

Without access to predictive modeling brands are forced to estimate future purchases by using purchases from the previous year. This approach is generally challenging due the presence of one-time buyers, shifting dynamics among customer behavior, changes in inventory and offerings, and competition with other brands.

Building segments for customer lifetime value without Amperity.

Use predicted CLV to identify your top customers by predicted spend, and then avoid having to use only historical purchases when deciding how and when to market to your most valuable customers.

  • Which customers are the most valuable and how can we attract more of them to our brand?

  • Is there anything unique about high value customers?

  • Are dedicated customers for one product more valuable than dedicated customers for another?

  • What can we learn to better inform acquisition efforts and product merchandising?

  • Does a promotion attract high or low value customers?

  • Should a promotion be relauched next month, next quarter, next year?

  • Which customers are best engaged through a VIP program?

How to use predicted CLV

Start with a combination of transaction attributes, apply predicted CLV, and then group them by customer lifecycle status, typically using active or cooling down, but sometimes using at risk. The following segments represent different types of customers who are likely to respond to a message in different ways:

  1. A segment for customers who have purchased more than once and for whom order revenue in the previous year is greater than $500 and with an active lifecycle status.

  2. A segment for customers who have purchased just once in the previous year with an order value less than $200 and an at risk lifecycle status.