Customer experience determines business sustainability and growth. Customer Lifetime Value (acronyms: CLV, LTV, CLTV) is one of the vital metrics to measure the customer experience. It differs from other sales metrics in the sense that it portrays the real return on customer acquisition cost and helps frame tactics to mitigate the churn.
Before we move into the rest of this article, here’s a quick question: where would your business most likely to invest: attracting new customers or retaining the existing ones?
The answer is most probably not quite direct. But, at least not without considering the benefits of customer retention and understanding the importance of increasing the customer lifetime value.
Cloudely explains why businesses must focus on increasing the customer lifetime value (CLV) and the secrets to achieving it. Read on to know more:
What is Customer Lifetime Value?
Customer Lifetime Value is how much a customer spends on your product or service in their lifetime.
To calculate customer lifetime value, consider the following parameters:
- The price of the service or product
- The count of the services or products
- The duration in months or years (based on the billing cycle)
By multiplying these factors, you can calculate the customer lifetime value.
Say, you offer a subscription-based service that costs $1000 per year. Your customer has been associated with your business and utilizing this subscription-based service for the past four years.
Now, the customer lifetime value in this case becomes $1000 x 4 = $4000.
In case, the customer takes multiple subscription services, say 5, and assuming that each one costs $1000, then the customer lifetime value is $1000 x 4 x5 = $20000.
Relation between Customer Lifetime Value and Business Growth
Customer retention is paramount for any business. Customer lifetime value directly indicates how happy a customer is with a business offering.
A peek at statistics of customer retention and acquisition explains why companies must focus on improving customer lifetime value for business sustainability:
- The cost of customer acquisition is 5 times the cost of retention.
- The success rates of selling to an existing customer are 60-70% while to a new customer is only 5-20%.
- Existing customers display interest to try and purchase new products 50% more than the new customers.
It’s clear that CLV directly indicates the necessity and benefits of retaining customers than trying to acquire new ones. It is why:
- 89% of companies believe customer experience is crucial for customer retention.
- 76% of companies consider CLV as a top metric to improvise their customer experience.
Despite its importance, only 42% of companies are able to measure the CLV and implement strategies to increase the customer lifetime value.
Related Read: How to set SaaS OKRs?
Tactics to Increase Customer Lifetime Value
Below we explain the tactics to increase customer lifetime value that can positively impact business revenue and customer loyalty.
#1: Referral Programs
Word of mouth is one tried and tested technique in business growth. Mobilizing the goodwill of the customers by offering incentives through referral programs is a great tactic to increase customer lifetime value.
When your loyal customers spread the word about your offerings to others, you enjoy two benefits in a single shot: retain the loyal customer, thus reducing the churn, and gain a new one without much sales and marketing effort.
Studies indicate that referrals are a razor-sharp tactic to target relevant customers with minimal investment. Customer reviews, testimonials, forums, social media, influencer marketing are all the most preferred channels for referral marketing.
One key advantage of a referral program is its suitability to both B2B and B2C businesses, as well as for both online businesses or brick-and-mortar stores.
#2: Make Your Loyal Clients Feel Valued
“When a consumer derives value – especially from something that was given to him for free – he becomes the best kind of evangelist” hints Mitch Joel, a renowned entrepreneur and author.
Nurture the existing customers with a touch of personalization. Leverage email marketing and push notifications to let them know the arrival of new stock, the launch of new products and services and the exclusive offers made available for them.
Identify their pain points by mapping their journey with every minuscule detail. Study the touchpoints from various views and offer them services catering to the respective needs. This builds customer trust which proves fruitful in the long run to increase customer lifetime value.
Suggested Reading: Customer Appreciation Ideas: 16 Tips
#3: Invest in a Customer Training Program
Customer training assumes importance for SaaS and B2B businesses. Training your customers on the products and services they are about to experience leaves them with ample time to enjoy it instead of trying to understand it.
When done the right way, besides putting the customers at ease in using your offerings, it also promotes your brand as a reliable one.
The approach for customer training can vary with budget and offerings. FAQs, user forums, demos, guided onboarding, or sometimes simple self-paced programs all cater to your customer training needs.
Interestingly, for every $1 spent on customer training, the returns are $12, which makes customer training one of the indispensable tactics to increase customer lifetime value.
#4: Ask and Listen to Your Customers
“A customer talking about their experience with you is worth ten times that which you write or say about yourself.” ― David J. Greer
Asking your customer about the areas of improvement presents the opportunity to identify the bottlenecks in your customer service and or the scope of improvement in your offerings.
While strategizing a myriad of programs to improve customer service is a good place to start, asking the customer what precisely needs to be improved gives actionable results.
Polls, emails seeking feedback and Net Promoter Score (NPS) surveys help in assessing customer satisfaction. They also help in segmenting customers into Promoters, Passives, and Detractors, where the chances of loyalty fall as we move from the former to the latter categories.
#5: Reduce Churn by Promoting Annual Billing
While customers prefer the flexibility monthly and quarterly subscriptions offer, to increase the customer lifetime value, focus on promoting annual subscriptions.
Annual subscriptions help you buy time to leverage cross-selling and up-selling along with bringing fruitful ROI for the cost and effort invested in turning the prospect into the customer.
With that said, convincing the customer to choose annual subscription demands some sweet deals. While discounts on annual billing are the most chosen way to attract customers, offering them free subscription to other value-added services is also a great tactic.
#6: Smoothen the Onboarding Process
Efforts to increase customer lifetime value should begin with smoothening the onboarding process. A good onboarding process makes your customers come back, again and again.
Needless to say, onboarding is the first step where your customer gets to know how well you receive them in familiarizing them with their purchases.
To improve the customer onboarding process, consider these approaches:
- Add value to trial experiences: Demonstrate the best value of your product during the trial period so that the customer would not even intend to opt-out of your services.
- Engage the customers: Familiarize the customers with your products and then engage with them periodically to enquire if it solved their pain points or they expect anything more from you satisfies them.
#7: Increase the Average Order Value
Increasing the overall order value is a proven tactic to increase customer lifetime value. In fact, this has been a tried and tested technique in many industries such as eCommerce, Food and Dining, eLearning, and more.
To increase the average order value:
- Make smart suggestions about the related services and products that match your customer’s cart.
- Offer a certain discount when they intend to buy the whole bundle of products.
- Show them how the smart suggestion adds value and enhances the customer experience.
In this context, the smart suggestions may or may not be in the price range of the initial item that the customer added to the cart.
Even displaying low priced items as suggestions to increase the order value will increase the customer lifetime value by cumulating the revenue from the customer in the long run.
#8: Hook Customers through Compelling Content
Content marketing is an effective way to both create new customers and retain the existing ones. Engage and make your customers feel valued by creating and sharing compelling content through email marketing and social media.
Content marketing presents the opportunity to let your customers know how they can attain the best value of the products and services they purchased. Create targeted campaigns specifically focused on solving your customer pain points.
A key to making your investment in content marketing successful is to add a dash of personalization to your marketing content. Treat your customers with educational content that solves their pain points and is way far beyond the sales pitches and automated responses.
A cherry on the top is, all these tactics establishes your brand as an industry expert besides helping to increase customer lifetime value.
#9: Nurture Your Customer Community
Creating an ecosystem is an asset for a business. Make your customers an important element of the ecosystem and value them. It fosters good customer relationships besides bringing down the churn.
Connect with your customers periodically, say monthly, quarterly or half-yearly. Map their journey and identify their touchpoints. Utilize surveys and feedback mechanisms to gain insights on how to deliver services better.
Alongside, business reviews help to gain assurance if you are on the same page with your customers. While implementing all these tactics to increase the customer lifetime value, make sure your customers feel heard and valued.
#10: Improve Customer Service
A staggering 90% of Americans opt for businesses that have customer service. As Jae Baer, the author of best-sellers in customer service publications advises – Customer service is the new marketing that differentiates one business from another.
Bolster your customer service by expanding the presence through an omnichannel approach. Customers expect a timely response for their queries, which means you need to allocate resources on all channels so that the customer gets an assured response without delay.
Timely refunds and return policies are other ways to satisfy customers and earn their trust. Such measures uphold your brand’s position as customer-focused and increase customer lifetime value.
Ask us How to Increase Customer Lifetime Value
Customer Lifetime Value is a critical metric that businesses just cannot ignore. In addition to the above steps mentioned, delivering a little more than your competitors and letting the quality speak for your services, increasing customer lifetime value should not be harder.
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