Customer Lifetime Value (LTV or CLV) is a marketing concept used to calculate how much money should be spent to maintain customers and acquire new ones. For example, if the average new customer costs $100 to acquire and their lifetime value is $200, the customer can be considered profitable and additional similar customers would be worth acquiring for your business.

Two weeks ago I wrote about how gaining customer loyalty should be the primary goal of every retailer. In addition I highlighted several ways to boost your own customer loyalty for the purpose of increasing business revenue. Notably missing from that list of strategies was the execution of a customer “loyalty program”. One of the reasons that I did not include this option is because “Loyalty programs” are based less on customer loyalty and more on giving customers incentives to continue doing business with your store. These incentives can be either monetary, in the form of store credit and discounts, or giving away physical product, such as coffee and sandwiches. Customers participate in these programs not because they feel loyal toward your store, but instead because they will gain something by spending money with your store. Because these programs do not foster true customer loyalty I believe that a better description, or rather title, for these types of programs should instead be “Customer Rewards Programs”.

In my last post I wrote about businesses becoming commodities and how to prevent this by creating a Unique Value Proposition (UVP) for your store. Many small stores have suffered trying to compete with larger chains. Even though it’s difficult, a smaller store can coexist with, or even outperform a chain. The trick is to shift your focus from trying to excel at everything to excelling primarily on one important point: customer service. There is no way that you can hope to offer lower prices than these businesses; you simply can’t buy at the same cost or in the same quantities. To set yourself apart and run a truly profitable and successful business, you have to set your store apart by excelling in customer service.