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Customer Lifetime Value is the projected amount of revenue a customer will generate over their lifetime at your business. According to FiveStars, a loyalty automation platform for small and medium businesses, the formula for estimating lifetime value is:
Your average spend per month divided by the monthly customer churn rate (percentage of this month's customers who don't come back).
For example, if average spend for the month is $10, and the percentage of customers that month who do not return is 20 percent, then the CLV is $50.
According to Chris Luo, VP of Marketing at Five Stars, you obviously want the CLV to be as high as possible. To do this, you could spend more per month (which affects the lifetime value minimally) or you could get more customers to come back and reduce the monthly churn rate, which yields better results.
A recently published infographic from FiveStars shows that, while this solution may sound simple, even the biggest chains struggle to get many of their customers to return. For example, the percentage of customers who don't come back within the next six months after a visit at the following brands include:
New customers churn at very high rates. At restaurants, this rate is about 60 percent.
However, once a customer comes back a second time, churn rates fall significantly. The percentage of second-time customers returning in the next four months after a second visit is about 75 percent at restaurants. A FiveStars' data study shows that the most successful small businesses get more than 60 to 70 percent of their customers coming back on a monthly basis.
5 ways to get more customers to come back
Luo offers five ways to get more customers to come back, and increase your restaurant's CLV.
Read more about customer experience.
Photo provided by Wikipedia.