If you are looking to grow your business or maximize profitability, you should be paying attention to your CLV.
But what exactly is CLV?
Simply put, customer lifetime value (CLV) is the amount of money your business can expect to earn from an average customer throughout your relationship.
When you start measuring CLV, you can see what is working and what is not. As a result, you can change your strategies, tweak your pricing and sales, and better plan advertising campaigns, all with the goal of cutting costs and increasing profit.
Furthermore, when you know how much money you can expect to earn from a new or existing customer at the end of their journey, you can increase/decrease your costs to maximize your profit and still manage to remain attractive. A growing CLV can also make your business more attractive to investors and potential acquirers.
So, how can you boost your company’s CLV? This is where affiliate marketing steps into the picture. Maybe your company has spent a lot of time optimizing Google Ads and Facebook Ads, but keep in mind that affiliates can be a powerful tool you can use to increase customer lifetime value.
Before we dive into the details, let’s take a closer look at the CLV formula and its significance.
What Is the Customer Lifetime Value Formula?
Unfortunately, there is no one magic formula all companies use. However, there are several factors all businesses track to calculate CLV. One of them is time.
So, let’s say you want to calculate the CLV for one year. Apart from the time frame, you will also have to take your total revenue into consideration. Revenue is calculated by multiplying the average price by the quantity of sold units. Let’s say your average ecommerce customer spends $20 per month.
Finally, identify the expenses associated with acquiring each customer. This would include advertising and marketing expenses like online advertising, the cost of discounts, and more. For example, let’s say that all those expenses amount to $50 on average per customer. Based on all that data, the CLV for the company would be $190 (i.e., $20 times 12 minus $50).
Ideally, the CLV formula will consider all marketing costs, including marketing employee and contractor costs. By including all marketing costs in your CLV, you will better understand just how efficient your marketing strategies are.
Once you have calculated your CLV, there are a few ways to interpret it. You can compare your CLV to your company’s records over time. Is it growing or falling compared to a year or two ago? If CLV is improving over time, this is a good sign that your business is thriving. If CLV is falling over time, changes need to be made to the customer journey and experience.
3 Ways to Boost Customer Lifetime Value with Affiliates
There are a few ways to boost your CLV and working with affiliates can be a powerful way to achieve that goal. Here are three ways you can formulate your affiliate marketing program to achieve success.
1. Encourage Long-Term Affiliate Relationships
Finding and recruiting new affiliates can be expensive and time-consuming. That is why affiliate campaigns become more cost-effective when you work with the same affiliates for longer periods. If you struggle to keep your affiliates working for you due to irregular payments or uncompetitive commissions, your staff will spend a lot of time and resources searching for new ones.
Worse yet, with each new affiliate, you will have to start from the beginning. That means that you will have to teach them about your business, develop a strategy, and give them guidelines. Time is money, and you will be wasting a lot of it on your affiliate hunt. All of this will drive up the cost aspect of CLV.
Customer loyalty plays a big role, if you have well-developed brand guidelines for affiliates and offer timely payments, your old affiliates will happily keep working for you, and your customer retention will be higher as they’ll be promoting your business for a long period, and you won’t have to spend time or money on affiliates search engines, onboarding, training, and other tied efforts.
2. Generate More Marketing Ideas for Less Money
Promoting your business and grabbing the attention of new potential customers often requires fresh ideas. Just think about a commercial you saw over and over again on your TV. The first time you saw it, you watched it from beginning to end. But what happened when you saw the same commercial for the 100th time? You ignored it completely, right?
The same will happen with your marketing ads if they remain the same over a long period. New ideas are always welcome in marketing and who has better ideas than people who are always interacting with their audiences on social media? Influencers have unique insights into the latest consumer trends. Using those insights, affiliates can come up with new marketing ideas.
Encourage your affiliates to generate new marketing approaches and messages and you can reduce the risk of ad fatigue (i.e., people becoming less responsive to ads after seeing them multiple times). New marketing ideas can drive up your sales at no added cost to the brand. As a result, your CLV will begin to grow.
3. Optimize CLV with Tailored Commissions
So far, we have talked about CLV at a company level covering all products and customers. In some cases, you might be interested in driving up sales only for specific products or customer base.
Let’s take a look at the following example. An ecommerce company has two products: a $100 product with a $25 margin and a $10 product with a $2 margin. To boost your profits, you might want to focus on the $100 product. To make sure that the more expensive product sells more, consider setting a higher commission rate for it to attract affiliate attention.
By tailoring commission rates based on your goals and margins, you may be able to increase CLV over time. Refersion makes it easy to customize your commissions by SKU so you can encourage affiliates to focus on the right area to earn a commission.
Bonus Tip: Refersion makes it easy to change your commission rates at any time. You can also use time-limited commission rates to meet goals. For example, planning a 30-day challenge for affiliates with enhanced commission rates to launch a new product.
How Refersion Helps to Boost Customer Lifetime Value
The above affiliate marketing growth strategies take time and effort to execute. Your marketing team may already be too occupied with your marketing projects and may not have the capacity to take on more work. Luckily, with Refersion, you can automate the many aspects of affiliate marketing.
Through Refersion, you can track, onboard, and approve commissions from a single dashboard. Save time and develop new marketing ideas with your affiliate programs. When your marketing team can take on larger and more complex campaigns with minimal expenses, you can drive up your CLV.
To find out if Refersion is right for you, start your free trial today.