Why Customer Lifetime Value is your North Star Metric

What is a north star metric?

A North Star metric reflects the value that a company and its products or services deliver to their customers. This metric is the one metric that matters most tin a company as it directly contributes in its long-term growth and success.

Also, it is the one metric that all the different departments can focus on and use while doing their jobs.

For it to qualify as North Star, a metric should have an impact on revenue, the value delivered to customers, and all the departments should be able to contribute in improving it.

It can differ from one company to another based on the type of service or product that they deliver to their audience.

Here are some examples for some companies’ North Star Metric:

  • - Facebook: Monthly active users

    - Spotify: Time spent listening

    - Airbnb: Number of nights booked

    - Amazon: Number of purchases per month

    - Quora: Number of answers to questions

Why is it important for a company to have a North Star metric?

North Star metrics are important as they give you an idea into how your company is doing and help guiding your future decisions that are data-driven, that leads to more revenue and lower costs.

Having a North Star metric helps companies getting their teams to be goal-oriented as it is the one metric that should simplify a company’s strategy into terms that all the different teams can remember, understand, and apply.

What is Customer Lifetime Value?

Customer Lifetime Value (CLTV) is the metric that measures the total income an ecommerce can expect to bring from a typical customer as long as they remain buying from their store.

A good understanding of CLTV allows you to make better-informed decisions in all business aspects such as sales and marketing.

This metric is used by businesses to identify their most valuable customers; the longer a customer continues to purchase from a company, their higher their lifetime value becomes.

Why is CLTV important to track?

It’s important to track and work on improving CLTV as it costs less to keep an existing customer than to acquire some new ones. Therefore, focusing on improving it, is an efficient way to drive growth and revenue.

By measuring CLTV and comparing it to Customer Acquisition Cost (CAC), companies can easily measure how long will it take them to win back the investments they spent to acquire new customers.

Why should ecommerce consider CLTV to be their North Star metric?

Because CLTV focuses on the long-term value not the quick behaviors of flash sales or seasonal fluctuations.

Having CLTV as your North Star enables everyone in the company to do their part and to understand exactly what needs to be done in order to improve it, and therefore increase revenue.

Also, all teams can focus on boosting it. For example, your design team focuses on creating a user-friendly product. The development team works to make your website/application load faster. And the marketing team should focus on creating better ads and campaigns.

CLTV have a direct effect on your long-term growth and your revenue; here are some ways to improve it:

  • - Customer Loyalty or Reward programs:

    Ecommerce rely on loyalty and reward programs as an effective way to increase their CLTV. This approach rewards existing customers by giving them something back for keeping coming back to your shop.

  • - Cross-selling:

    It’s the selling of a different product to a customer in order to increase the value of the sale. If you can see that a cross-sell may add a value to your customer, don’t hesitate to mention the option.

  • - Improved Customer Service:

    Customer Service can make or break any B2C company. That’s why you have to make sure that each individual interacts with your customers is a pro in how to handle customers complains and problems. Also, make sure that your customers get an opportunity to provide a feedback about their experience with your brand to know what you should be improving.

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