Digitization is gradually affecting almost every company. It is not without reason that the majority of managing directors fear that their business model will change radically in the coming years due to digitization. For this reason, we will show you why customer lifetime value is so important for digitization.
When companies think about digitization, unnecessary activism often arises. Tools are purchased according to the motto “The more expensive, the better” or digital offers are made available, such as an online shop, without this having any real added value.
What companies need to understand right from the start: Digitization is not a project. It is a holistic process that takes time and requires a strategy.
ROI calculation: That’s the challenge
This is often accompanied by false expectations when it comes to digitization. Companies calculate with the ROI (Return on Iinvestment), literally translated as return of investment. The ROI is therefore an operand that makes it clear when an investment has paid off.
In theory, companies want to get the invested capital back as quickly as possible. In practice, however, companies face a number of challenges. Every single decision often has to be decided by many decision-makers. In addition, companies are also tied to other parties, such as suppliers.
In addition, many companies do not think long-term enough. They only focus on new customer business instead of also permanently integrating existing customers into the business models.
Key Size Customer Liferaytime Value
That’s why companies shouldn’t just focus on ROI when it comes to digitization. Another crucial factor is the Customer Lifetime Value (CLV). This is calculated as follows: Customer lifetime value = (contribution margin x resale rate) x customer lifetime – customer acquisition costs.
The calculation of the CLV can be explained more easily in practice using an example: If a company wants to launch a new website in the e-commerce sector, the following advantages can result for the company:
So the company decides to develop a new website with better search engine visibility. This gives the company 50 new (net) customers per year. By improving the upselling processes, it is also possible to increase the average order volume by 1 percent to EUR 5,050.
If you now compare the customer lifetime value before and after the launch of the new website, this shows an increase of 1 percent.
Planning your next digital project
In order to grow permanently and sustainably, companies should consider a digital strategy with a measurable ROI. The customer lifetime value should be taken into account as a central key variable. It is also worthwhile forming cross-departmental teams for digital projects. Because digitization never only affects individual departments, but all areas of a company.
A Digital Experience Platform (DXP) such as Liferay DXP can form the basis for successful digital projects with measurable ROI. Liferay’s open source platform supports you in the following areas, for example: integration of existing systems, content management, e-commerce integration, collaboration and social media as well as segmentation and personalization.
In addition, Liferay offers various cloud options to provide you with the best possible support for your digitization projects.
Liferay is a leading open source software company. The scalable and flexible digital experience platform already supports more than 1,800 companies worldwide in the implementation of convincing customer experiences. Learn more about Liferay DXP now, calculate your Customer Lifetime Value and put more emphasis on a measurable ROI.
Convince yourself now