Customer Lifetime Value (CLV) is an essential metric that helps track the profitability of a business. Companies measure it in different ways, but the resulting value represents the profit gained from each customer during the lifetime of their shopping with a brand.
According to Harvard Business Review, it can cost five to 25 times less to retain an existing customer than to acquire a new one. It’s hard to beat those cost savings, but how do you get customers to keep spending with you rather than going with a competitor?
One way is to implement an effective points-to-rewards program. At Giftbit, we make sending rewards to loyal customers simple. You can send digital gift cards in bulk with just a few clicks or integrate with our API to automate your rewards when customers earn points.
Why Is CLV Important?
A higher CLV means that your business gets more value from customer acquisition costs. Let’s look at an example of an equation to calculate CLV for a company with a subscription model:
CLV = (Average purchase value) x (average purchase frequency) x (average customer lifespan) - customer acquisition cost.
If a customer signs up for a $50/month subscription, and the average retention span is 5 years, and the average acquisition cost is $40, the customer’s lifetime value comes to $2960.
How Does Customer Loyalty Affect CLV?
A Forbes article revealed that the chance of existing customers making another purchase is 60 to 70%, while a new customer has a 5 to 20% chance of buying something. Loyal customers are your best source of income, and the longer their lifetime with your business lasts, the higher your CLV is and the more profit you make from retention and acquisition costs.
How a Points-to-Rewards Program Boosts CLV
Creating a loyalty program incentivizes customers to spend money on your brand over a competitor to earn rewards points. Why would they think of going somewhere else when they have online rewards, gift cards, and special offers from your brand?
Points Encourage Higher Spending
Points can get customers to spend extra money to get a reward. They might have $50 worth of products in their cart, but if they just had to spend $10 more to reach the points threshold for a reward, they might add something else. The item they add for extra points could be $20, much more than they were going to spend initially.
These extra items add up with every loyal customer, meaning you’re making a lot more money just by offering a simple rewards program.
Switching Costs Helps Maintain Customer Engagement
“Switching costs” is what the customer loses by switching to a competitor. The loss could be points they didn’t use, coupons they haven’t redeemed, or special member status.
A program that lets loyal customers earn 1 point for every dollar ensures they always have something in the bank. They’re less likely to shop somewhere else when they could be redeeming points with your brand. Changing stores means they lose out on the rewards they spent money to earn, making it feel like a loss if they switch.
Time-Sensitive Rewards Induce FOMO
Another way to retain customers is to instill FOMO (fear of missing out). Businesses often do this by promoting flash sales or requiring a minimum amount of purchases during a period (one year, month, etc.) for VIP status.
For a points program, you can give the points and rewards expiration dates as a part of your terms and conditions. The customer will feel like they have to come back and buy something or miss out on a great discount with their points.
Referral Incentives Increase Customer Retention and Acquisition
You might be wondering how referrals relate to a customer’s lifetime value. A survey on the most effective marketing programs showed that 78% of marketers believe referral programs create “good” or “excellent” leads. People who get referrals from trusted friends or family are more likely to convert and also become a rewards member.
Your existing customers will be more likely to refer people if they receive rewards in return, and it keeps them coming back to your brand. If a customer earns 100 points for each referral, they’ll simultaneously find new customers and give themselves a reason to come back and shop.
Use Giftbit for a Rewards Program That Keeps Customers Coming Back
Giftbit lets you buy, send, and track digital rewards for your loyalty program. Automatically send gift cards through an integration with Zapier or our gift card API, and check out the stats behind the curtain so you know how effective your program is.
Sign up with Giftbit today for a free demo