Customer Lifetime Value (CLV) is defined as the total revenue a company anticipates generating from a client over the term of their business relationship. It is a prediction of all the value a business will derive from their entire future relationships with customers.
The CLV is not just about one-time transactions but encompasses the whole history of interactions with a client. It becomes more critical for businesses like accounting and consulting firms who often work with relatively smaller customer bases and rely significantly on establishing and preserving beneficial long-term relationships with their customers.
The calculation of CLV usually involves a variety of factors, including the client’s acquisition cost, retention rate, cross-sell, up-sell potential, and the average margin per customer. For accounting and consulting businesses, by incorporating cost accounting data and using projections around customer retention and cross-selling opportunities, a more accurate CLV can be realized.
Customer lifetime value is beneficial for several reasons. It provides insight into how much is reasonable to spend on acquiring new customers and helps identify which types of customers are the most valuable to your business. Also, it informs decision-making around customer service, sales, and product development. Understanding and continually working to improve the CLV is key in achieving long-term business success, especially in service-oriented businesses like accounting and consulting industries.
