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Lifetime Value of a Customer vs. the Churn Ratio: Is one more significant?

Oct 4, 2024

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Being a entrepreneur it is your responsibility to make sure the success of your website. A significant element of that is looking at the life-time value of your users and the turnover rate of your site.

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In this piece, we'll take a look at at these two crucial factors- customer lifetime value (CLV) and churn rate -- to help you understand them and their importance to the performance of your site.

Let's get started!

What is the Customer Lifetime Value and Churn Rate?

The first step is to define what CLV and churn speed are in relation to subscription and membership sites.

The Value of Lifetime Customer Value is explained

The value of a customer's lifetime (CLV) is the term that describes how much every customer (or member, in this case) can be important to your business.

What You Should Know About Your CLV

Understanding how much profit, on average, each participant on your website earns helps you make more educated decisions when it comes to investing in your business.

If you are aware that the average CLV of your website is $100 and your site has 100 members, your business should generate a revenue of $10,000 in the average.

Knowing how much each new member who joins your club is worth also helps you avoid spending more on the acquisition of new members than what you'll earn on subscription charges and other transaction.

How Do You Determine Your CLV

What you do to determine your customer's lifetime value is contingent on the kind of membership site you're running and the way it's subscriber and payment model look like.

Using a basic membership site to illustrate it is possible to determine the CLV by multiplying the month-long subscription cost by the length average of a typical membership for the website.

Imagine your membership costing $20 per month, and the average length of membership is six months. On the basis of these numbers the value of an individual member on your website is six months multiplied by 20 dollars per month or $120.

If your membership site also includes a registration fee that is $10, then the CLV could be increased to $130.

The situation gets more complex if your membership site has optional extras. These extras might include features like the ability to access premium content with a more expensive price, different pricing plans or products available for purchase.

If you do, a look back at your data and a general Averaging can help you determine your CLV's unique value regardless of your pricing structure.

It is evident that your CLV can be very crucial to the health of your site's membership, but is it more important than the churn rate?

Churn Rate Explained

Knowing the churn rate of your site is just as important as knowing the CLV. You'll find that, in fact that the two are closely linked.

However, whereas you'll want to boost the CLV of your membership website in order to increase revenues, you'll also want to lower the rate of churn to the extent you can.

Churn rate refers to the percentage of customers that leave your website over a period of time -- usually a year. The greater the rate of churn, the greater the number of subscribers who end their subscriptions, thereby reducing your site's CLV.

There are numerous reasons people leave your site.

What is more important What is more important: Lifetime Value for the Customer or the Churn Rate?

There's not a simple answer for this issue, as the CLV and the churn rate metrics are tightly intertwined.

In the past, if your website has a large churn rate due to members who are canceling their subscriptions shortly after registering, this can have an enormous impact on your CLV.

Low churn rates However, a low churn rate it means you're keeping members, and paying monthly for a longer time -which will lead to an increase in CLV.

Keep in mind that both the CLV and churn rate are vitally important for the performance of your site's membership. However, once you've achieved an extremely low churn percentage, you can still make improvements to the CLV of your website.

How can you increase the Customer Lifetime Value

One simple way to increase the customer lifetime value of your website is to increase your membership fees.

Raising your prices does have the possibility of increasing the churn rate of your website. However, if the price increase is backed by enough significance to justify them you'll notice your CLV rise.

It is also possible to earn money through your customers in different ways to increase the value of your business. You could, for instance, offer extras as a single fee, such as access to an online event or a product like an ebook. If members are paying the extra costs on top of their membership fees, it will improve your site's CLV.

Final Reflections

Being able to maintain a low churn and high CLV are two crucial aspects to managing a well-run membership site.

If your site has recurring subscription fees and you want to reduce the number of customers who churn out will improve the value of a customer's lifetime. It's simple: the longer an individual remains a subscriber of your website, the more revenue they will generate.

If you're struggling to get your churn rates down, you can still increase CLV by increasing subscription fees or by selling other products or services to members.

The majority of things you do to reduce the churn rate of your site's membership, such as adding more content, will also allow you to raise your rates. This will increase your CLV by making your membership site more appealing to your target audience.

If you're looking at it, it's impossible to determine whether the CLV or turnover rate of your membership website is more significant. Both metrics are going to perform in conjunction.

For additional tips on how to retain members and keep them loyal to your website, check out our article

 Have you come across any tried and tested ways to increase the lifetime value and reducing the number of customers who leave your website's membership? Tell us about it via the comment section!

Joe Fylan       Joe is a recognized WordPress master who's always developing WordPress websites, including sites, on the regular. Joe is passionate about sharing his knowledge to other WordPress users. Check out all his latest WordPress updates and news on the Get Web Tips website.