Articles

Explained: The Customer Value Flywheel + How to Build One

A headshot of Chad Neufeld

by Chad Neufeld

Traditional approaches to measuring customer value are often outdated and cause the brands that use them to miss out on a significant amount of value. This article introduces a new way to see customer value and provides a framework so you can execute a customer value flywheel for your brand.

Customer Value (The Old)

Customer value has traditionally been measured in revenue. CLTV, or Customer Lifetime Value is usually calculated by finding the average purchase value, the average frequency of purchases per year, and the number of years in a customer's lifespan monkey.

Take our Marketing Coordinator, Kennedy, for example. Kennedy is a die-hard Aritzia fan. If she spends an average of $250 dollars each month on clothing items, and they can count on her business for, let’s say ten years, then her CLTV for Aritzia is around $30,000.

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Unfortunately, this formula is missing out on a significant amount of value. It’s probably because we all learned it in business school from a textbook that was originally published before the first iPhone.

Folks measuring customer value often miss three aspects: 

1. Consumer insights & market research: How much does your company spend on research each year? Many brands will have a research firm on retainer or run expensive focus groups. What organizations fail to recognize is that their customers are often the best equipped to support this work. If Kennedy answers a few key questions for her local Aritzia and provides them feedback that supports a business decision, that’s real value. And by accessing customers, often at little to no cost, I’m saving market research dollars.

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2. User-generated content or UGC: Research shows that UGC is 42% more effective than brand-created content, and 90% of US consumers report UGC to be one of the most influential parts of their purchase decision. Aritzia’s latest Spring dress might look great posed and pinned on the model, but what about when someone like Kennedy takes it home to wear day-to-day? She's going to be looking for that kind of content before she buys, and customers who are creating UGC for a brand are adding value. Their work increases revenue, and reduces marketing costs. And let’s not forget, your best sales team are your customers, involving them in the customer journey means fostering brand advocacy along the way. 

individuals with chart and large lightbulb

3. Customer success: When customers can support, train and inspire other customers, it means that your team does not have to do that work, AND it means that your products can be used more effectively, and often in ways that customers had not considered originally. That means lower headcount and increased customer satisfaction and loyalty.

Customer Value (The New)

This new formula for CLTV is a bit more complicated, but it does a much better job of capturing all the value that a customer can contribute to your brand.

Companies who begin to look at customer value in a more holistic way can weave insights, UGC and customer success into their marketing approach, and they can optimize each aspect.

customer value flywheel diagram

By doing this, they can create a proverbial flywheel. Customers can provide insights that lead to better business decisions and more customers. That larger pool of customers, while generating greater insights can create UGC, that brings in still more customers. As these individuals enter the loop, they are being supported, trained and inspired by others.

Where Community Comes In

A robust online community platform is one of the only ways to facilitate this customer value flywheel. Cutting edge brands use a community to connect with customers, find insights, gather UGC, and host customer success activities. With a community, they can do all of these things in a space they own. By building the customer experience around a community, brands can maximize customer value at scale.

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In order to build a vibrant and always-on customer value flywheel, you need to have an ecosystem where your customers can gather in one central location. An online brand community provides you with this space, giving you direct access to your customers, where you get to own and control all of the data and guide customer participation along the way. Communities offer a more comprehensive way to engage and interact with your customers, and allow you to build and create activities that directly support real-life business objectives and add more value to your customer flywheel on an ongoing basis.

Leading community software platforms like ours, offer more diverse ways for your customers to participate, unlocking more value for you and your brand. If you're ready to become a leader in your marketplace with the value of community and the customer value flywheel, we’ll show you how. Book a demo and subscribe to our channel.


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