Losing customers and acquiring new ones is part and parcel of any functioning business, but that doesn’t mean you should just accept it.
Keeping hold of your existing customers can minimize the urgency of acquiring new ones, and with just a 5% increase in customer retention providing an overall profit boost of 25-95%, this is a lucrative endeavor.
But what exactly is customer lifetime value (CLV), and how can you supercharge this for your business? Read on to find out more.
What is customer lifetime value (CLV)?
Known by a few names, including customer lifetime value, CLV, lifetime value or LTV, this is essentially the profit a business expects to generate from a given customer.
For long-term, regular customers, the expected CLV would appear much more valuable to the company with less need for expenditure on marketing, acquisition, and enticing offers.
How to calculate customer lifetime value (CLV)
In order to accurately calculate CLV, there are a range of costs and revenues which need to be taken into account.
First, you must calculate the Customer Value. This is a simple calculation of the average value of their purchases or orders, multiplied by the average number of transactions. For example, if your average customer spends $100 per purchase and makes 12 purchases per year, their Customer Value is $1,200.
Next, you take the Customer Value (in this case, $1,200) and multiply that by the average customer lifespan to get the Customer Lifetime Value. Here, if your average customer remained active for 10 years, your Customer Lifetime Value would be $12,000.
Why is CLV (customer lifetime value) important?
So, now we know how – it’s time to find out why.
At its core, a business is all about revenue. Without a reliable idea of what you can expect to generate in months or years to come, it can be almost impossible to make feasible plans for the future.
By calculating your CLV, you can benefit in a range of ways, including:
- Resource allocation – understand how much resource you can afford to put behind each business activity
- Investor confidence – showcase your company’s financial solidity for the long-term
- Sustainable growth – make effective growth plans within the confines of your financial situation
- Financial projections – plan for the future and attract new investors or business partners
14 strategies to increase your customer lifetime value (CLV)
With this in mind, it’s clear that a strong CLV is indicative of a successful business – but how can you take this to even greater heights?
Here are 14 strategies to increase your CLV.
Improve your customer support
In order to keep hold of your customers, you need to provide them with an enjoyable experience each time they come to you.
As customer support representatives are often the first and last point of contact for your customers, ensuring they are trained and prepared with the right resources can go a long way to improving customer satisfaction.
Here are a few ways to improve customer support:
- Provide 24/7 customer support
- Offer multi-language support
- Utilize a live chat feature
- Leverage software such as co browsing and session replays to identify and solve customer issues before they become a problem
Improve your onboarding
First impressions count for a lot, and that goes for business too.
Improve your onboarding process and give your customers that ‘aha’ moment to hook them in right away and keep them coming back for more.
Engage in upselling and cross-selling
A main facet of your customer support teams should be upselling and cross-selling wherever possible.
Once your customers are invested in your brand and purchasing regularly, they are much more likely to be open to other products or services you offer.
It’s much easier to double an existing customer’s spend with you than to bring a brand new face in from the wilderness, and much cheaper too.
Improve your customer experience
Did you know, 86% of buyers are willing to pay higher prices for a better customer experience? Well, now you do.
With this in mind, consider revamping your customer journey to ensure each and every step in the process is an enjoyable, fruitful one for both parties.
Happy customers are returning customers, so make sure they have reason to come back time after time.
Create a loyalty program
Loyalty is a hard earned thing, and it doesn’t come by chance.
By offering your customers an enticing loyalty program, you can increase the chances of them returning to spend again.
As an example, some customer loyalty programs might see businesses offering points for each dollar spent, which can then be used to discount future purchases.
You can find out more about customer loyalty programs here.
Collect and implement customer feedback
How can you know what your customers want if you aren’t listening to them? Short answer – you can’t.
Making improvements or amendments in response to feedback is a surefire way to increase customer satisfaction and make them feel heard.
A heard customer is a happy one!
Set up a referral program
One of the biggest costs associated with CLV is the marketing activity surrounding new customer acquisition. In order to bring new customers in, you need to get in front of their eyes and show them what you’re about.
But what if someone else could do this for you, free of charge? This is exactly how a referral program works.
By incentivizing existing customers to welcome their friends or connections to your company, you benefit from a lower cost CLV and unlock a new pool of suitable customers that may never have found you.
Build a community
Similarly to a referral program, building a community helps to increase word of mouth referrals whilst also creating a sense of belonging with your brand.
Often seen on social media, these community groups showcase what your brand is all about and can attract like minded customers without extensive marketing investment.
Offer strategic freebies
Giving away your products for free might not sound like the best way to increase your CLV, but you might be surprised.
Offering ‘freebies’ not only keeps your customers feeling satisfied and valued, but also potentially opens to doors to new products for them.
For example, offering a freebie of a membership or subscription based product can leave customers wanting more when the free period comes to an end, leading them to sign up for the long-term.
Adopt a multichannel approach
Getting customers to spend with you is about getting in front of them where they feel comfortable.
By adopting a multichannel approach you can meet customers where they already are (for example, social media) and reduce the necessary spend on marketing and outreach.
If you make the experience as seamless as possible for your customers, they’ll be more inclined to return.
Offer discounts on annual plans
Securing long-term revenue stability is one of the best ways to increase your CLV.
Enticing customers away from a month-to-month contract and towards an annual one can help your business benefit from stable income on a yearly basis.
A small discount on an annual plan is a small price to pay for long-term stability.
Implement a dunning management system
Some customer churn is to be expected as a result of expired or canceled payment methods, but you shouldn’t let this get in the way.
By implementing a dunning management system, you can automatically retire failed payment methods and send notifications to the customer to remind them to update their card details.
Whilst some of these instances may happen on purpose, many customers may also be unaware of their failed payment and would relish the chance to rectify it and keep your CLV high.
Instill a customer-centric approach across your business
The customer is always right - this much has always been true.
Customers now base their loyalty on the experience they receive, so putting them at the heart of everything you do with a customer-centric approach is an effective method for securing their business in the long-term.
Know their needs and meet them, and you are on track for some very happy customers.
Optimize your pricing
When it comes down to it, pricing will always be a key factor in your customers’ decision making.
However, it’s not just about making it as ‘cheap’ as possible - it’s about striking the right balance.
A price that’s too high will drive customers away, and a price that’s too low will give off connotations of lower quality - neither of which are going to do your CLV any favors.
Your customers aren’t just for Christmas - they’re for life (hopefully).
Consider the strategies we’ve shared above to provide a greater customer experience and increase your Customer Lifetime Value as much as possible.