Definition – What is the Customer Lifecycle?

Jamie Johnson

in Tallyfy Customer Success

Take a moment to think about the steps your customers go through before they even make their very first purchase from your company. Perhaps it begins when a potential customer opts-in to your company newsletter and then eventually when they decide to make a purchase. And then hopefully over time, they will turn into repeat customers and brand advocates for your company. This is what is known as the customer lifecycle and it is the process your customers go through when they are building a relationship with your company.

25% to 40% of the total revenues of the most stable businesses come from returning customers. Repeat customers drive 3-7 times the revenue per visit as one-time buyers.Edward Gotham

The customer lifecycle begins the moment you first catch a potential customer’s attention. It is often depicted as an ellipsis because ideally, this is a process your customers should move through over and over again. Managing and maintaining the customer lifecycle is crucial for businesses to remain competitive in today’s marketplace.

Understanding the customer lifecycle can help your company maximize revenue for each potential and existing customer. And this really starts by understanding the five stages of the customer lifecycle.

The 5 Stages of the Customer Lifecycle

The goal of every business is to convert people into paying customers. Conversion rates are not the only metric businesses should be looking at, though. This is because the customers your business converts may end up being low-quality customers that only buy your product or service one time.

This is why it is so important to focus on the bigger picture, which is the customer lifecycle. There are five different stages each customer goes through during the conversion process. Learning how to optimize each stage will set your business up for better paying long-term customers. Listed below are the five stages of the customer lifecycle:

  1. Reach

This first stage is the point when you first make contact with your potential customer. This contact could come from a Facebook ad, a coupon delivered in the mail, or even a referral from a friend.



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For this stage to occur, your business must be marketing in places where the right people will see your content and become aware of your company. It is important to have the right metrics in place so you can see which of your marketing efforts paid off the most.

However, most people will not convert to paying customers during this stage. During this stage, you are trying to capture your potential customer’s attention and begin developing a relationship with that person.

  1. Acquisition

Now that you have the attention of your potential customers, they will move into the acquisition stage. The goal of this stage is pretty clear; you are sending people to your website in hopes of converting them into a subscriber or customer.

It’s important to understand that most people will come to your website with a specific desire or need in mind. So you need to help them understand how your business can help them meet those needs. You should have a process in place that will guide them toward converting to the solution that will help them the most.

  1. Conversion

This is the stage where your lead turns into a paying customer. The best way to convert your leads into paying customers is to focus on providing value and building the relationship rather than simply selling the product. Your customer should feel welcomed and valued; if this happens, the sale will happen on its own.

  1. Retention

Now that you have gained a new customer, your goal should be to figure out how to keep that person as a recurring customer. This means finding ways to upsell or cross-sell to that person.

During this stage, you need to continue to build and maintain your relationship with that customer. This means maintaining contact in some way and continuing to bring value to that person so they will think of you every time they need your product or service.



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Customer retention should be a top priority for businesses as studies have shown that reducing customer churn by merely 5 percent can increase your profits by 25-125 percent. It is much more profitable for businesses to continue to sell to the customers they already have than it is to find and market to all new customers.

  1. Loyalty

The ultimate goal of the customer lifecycle is to turn your client into a friend who regularly buys from you and recommends your product or service to anyone who will listen. Obviously, not all customers will reach this point but you should acquire more with each cycle. If you aren’t reaching this point then you can look back to see where you are falling short in the lifecycle stages.

Understanding the customer lifecycle and how to find and keep loyal customers is crucial to the ongoing success of any business.

Of course, not everyone who makes a purchase will turn into a long-term customer. It is hard to know who will turn into a repeat customer and who will make one purchase only to never order from your company again.  How can businesses determine the value of each customer relationship?

What is the Customer Lifecycle Value (CLV)?

If you were to apply the Pareto Principle to your business, you can estimate that roughly 80 percent of your sales will come from 20 percent of your customers. So it is safe to say that some customer relationships are simply more valuable than others. Estimating who your most valuable customers are is extremely important for the continued growth your business.

The Customer Lifecycle Value (CLV) is basically a prediction of how much value a business will gain from the entire course of their relationship with any given customer. Because you never know how long each customer relationship will last, CLV is basically a way for businesses to estimate a customer’s monetary worth over time. CLV is important because it helps companies determine how much money they want to spend on bringing in new customers and how much repeat business they can expect to gain from certain customers.

A simple formula for estimating CLV is to multiply the profits earned per customer times the average number of years they will remain a customer. Then you can subtract this from the total acquisition costs. And from that, you have your customer lifecycle value.

Estimating CLV can help businesses change the way they think about customer acquisition. Rather than simply trying to onboard a lot of customers as cheaply as possible, CLV can help you optimize your spending for maximum value as opposed to focusing solely on minimizing costs.

Conclusion

The customer lifecycle is a term that describes the different steps a customer goes through when they are considering, buying, using, and remaining loyal to a particular product or service. This lifecycle has been broken down into five distinct stages: reach, acquisition, conversion, retention, and loyalty.

An important point to understand the customer lifecycle is that because it follows a cyclical pattern, it never truly ends. The ultimate goal is to build strong brand loyalty and to create customers that will become advocates for your company, referring your product or service to their friends and family. To achieve this, companies must make sure they stay relevant and are continuing to offer value to their customers.

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