The move towards CLV as a key metric is based on the fact that it is more expensive to acquire a new customer than to keep one. This is not a new revelation, and different research projects have put varying figures on this over the years. The European Business Review recently reported, for example, on research that put the cost of acquisition at five times higher than retention. When it comes to profitability, the gains are even more compelling: Bain & Co’s research shows that a 5% increase in customer retention can ramp up profits by anything from 25% to a massive 95%.
Interestingly, whilst many retailers believe that CLV is important, the implementation of strategies to maximise CLV lags behind this conviction. According to one study, 76% of respondents say that increasing loyalty is a priority for their companies, yet just 33% say that CLV is a reported and valued KPI.