What Is Customer Lifetime Value Exactly?
So, what is customer lifetime value (CLV)? To put it simply, it’s how much money a customer pays during the course of your professional relationship. Let’s say you have a SaaS startup charging clients monthly. One of your top customers has been with you for two years, spending $100 per month to renew their subscription. If you multiply $100 by 24, you get $2,400 in the course of two years. Now imagine if you had 100 loyal customers like that. They would bring you around $120,000 per year in subscription fees. But you can always improve your CLV by increasing your current clientele’s spending and investing in marketing initiatives to bring over new customers.
Yet, customers don’t magically find your business online and decide to buy your products or services. Usually, you enforce a customer acquisition strategy. This means that you spend money on advertising, creating content, and implementing SEO. SaaS businesses that don’t have in-house experts may hire an agency to take care of SEO content. So, when measuring your customer LTV, you have to account for the expenses to attract buyers.
Let’s get right into it and check how you can increase your long-term customer value.
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Why Does It Matter For Your Business?
Why is it important to know the lifetime value of a customer? For starters, it helps you predict future revenue since you already know how much money each client brings. That’s why most business growth strategies focus on retaining existing clientele rather than spending excessive amounts on bringing in new customers. Additionally, it is proven that when you build loyal and trusting relationships, your customers spend more money with you. You can upsell or cross-sell additional services more easily, and they promote you through word of mouth.
Now, let’s talk a little bit about customer acquisition cost (CAC). Do you know how much money you spend to get more customers? Most SaaS businesses, for example, spend five to seven times more than they would to retain their existing buyers. When you know which segments cost less to acquire, you can allocate resources wisely.
Therefore, you create the best marketing campaigns that attract the right audience and convert prospects into buyers. Last but not least, when you focus on improving your customer lifetime value, you also boost customer experience. Creating personalized offers and promotions convinces people that you understand them and care about their needs. This way, they are more likely to spend more.
9 Proven Strategies And Tactics That Improve Customer Lifetime Value
1. Impeccable Customer Service
Customer service is one of the most painful thorns for businesses because it requires constant and upscale customer interactions. Client lifetime value depends on how quickly and efficiently you answer queries and communicate with people. In fact, data shows that 1/3 of consumers are likely to turn to competitor services if your customer service is poor. If we take a look at the most successful B2B customer service examples, we’ll notice that they use various methods to boost retention. Starting with omni-channel support, you should engage with customers on their preferred platforms to ensure long-term customer value. For example, SaaS and B2B businesses may find LinkedIn and X more useful than Instagram or TikTok.
Therefore, you must have a team monitoring your social media platforms to answer messages, reply to comments, and post regularly. Additionally, customers in this landscape expect quick responses and support 24/7. This is where AI marketing benefits come into play, with many companies creating chatbots. They can offer guidance even when your workforce is busy or away and during the weekends. They may not know how to close a deal, but they offer useful information and gather contact details.
2. Personalized Marketing And Offers
We bet you want to increase your customer life cycle value. To do that, you must invest time to understand each and every client. This is pretty much what account-based marketing is. You discover the needs, preferences, and special characteristics of each high-value, high-intent customer and focus on personalizing your marketing tactics and offers. For instance, let’s say you’re marketing your payroll software, and you know one particular company is using a tool with poor time-tracking capabilities. You can lean on how much more efficient your tool is at doing the exact same thing. To understand your customers in-depth, you should leverage relevant data and arrange meetings so you can ask questions face-to-face. Based on people’s past or frequent purchases, you can suggest similar products. Therefore, upselling, cross-selling, and customer services become easier and more valuable.
3. Upselling And Cross-Selling
SaaS customer lifetime value relies heavily on these two initiatives. Upselling is trying to sell existing clients upgraded product plans and subscriptions. For example, someone might have bought the basic plan of your recruiting software. They are very happy with its features, but you want to promote your upgraded version, which is more expensive. You don’t have to set up an entire promotional campaign for that. Your sales rep, who already has built a trusting relationship, can communicate with clients and explain the value of the elevated product.
On the other hand, cross-selling allows you to promote similar or complementary services. For example, someone who bought your recruiting software might also be interested in employee engagement tools. If you have more than one additional product, you can offer them in bundle prices to sweeten the pot. When you see someone being cautious about buying something extra or upgrading, you may propose a temporary upgrade so they can test the new software or additional features.
4. Unhappy Customers
Your goal shouldn’t only be to generate new leads and increase the customer lifetime value of existing buyers. What happens with unsatisfied customers who leave negative reviews online? Also known as detractors, these people don’t necessarily want to destroy you because they work for your competition. They can also be past clients or people who wanted to do business with you and had a negative customer service experience. When you see such complaints online, check whether a specific customer is actually in your database. If so, contact them to solve the matter discreetly—maybe all they want is for you to listen to their needs. Active listening and empathy help you increase customer value and build deep relationships. Also, you show that you truly care and want to improve your practices.
5. Feedback
The future of digital marketing is always shaped according to consumer needs. For example, the requirement for short-form videos has made it obvious that B2B companies should also invest in this content form. The same goes for business growth and improving customer lifetime value. Monitor all online channels, including social media platforms, review sites, forums, communities, and other relevant sources. Gather both positive and negative comments into one centralized system all departments can access. Not only that, but with high-value and old customers, you can arrange interviews, asking them directly about their experiences and opinions. Additionally, you can send surveys and questionnaires that are easy to complete.
Knowing what your audience and customers like allows you to ditch ineffective tactics and focus more on what works. For example, clients may not like the fact that you send emails twice a day, feeling overwhelmed. This way, you can decrease the number of messages sent. Also, feedback offers you content marketing ideas that improve customer life based on what people actually like to consume online.
6. Improve Onboarding
We already explained how to calculate customer lifetime value. The lifetime value of a customer starts with good customer service and onboarding. It’s one of the most crucial growth strategies for SaaS that, if done wrong, can lead to increased churn. Just because someone purchased your solution, it doesn’t mean that you forget all about them until it’s renewal time. Using a new platform may be challenging for people, and you should be next to them to help them navigate your software’s environment. Depending on the industry and specific customers, the onboarding may differ.
However, there are a few key similarities. First, your process should be easy and quick. You should prepare clear how-to guides and step-by-step tutorials that help users learn your service fast. However, don’t create generic videos for all clients. Personalize them based on the various industries you’re targeting and each company’s needs and challenges. Your onboarding should explain exactly how your service helps them tackle their struggles.
7. Loyalty Programs
Customer LTV means that your clientele is loyal to you, and even if someone else offers them the same service at a lower price, they will reject it. But that’s not an easy feat. To achieve this level of retention, you can enforce loyalty programs. This tactic may not be applicable to all B2B and SaaS companies. However, if you can implement these programs, they have the potential to increase customer lifetime value and help you attract high-quality business leads. How? When customers know that their loyalty is rewarded with discounts, gift cards, cash back, and free swag, they feel a sense of community. You actively prove that you value and respect them for being with you.
For B2B and SaaS companies, you may enforce a referral program. So, for every new client an existing customer refers, they get discounted plans, extra free trials, discounted event tickets, and more. Let’s say you have developed an app, and part of your referral prizes are a limited number of freemiums. This is a CLV marketing tactic.
8. Increase Your Prices
If you’ve read a lot about growth hacking strategies, this one may sound absurd. How can increasing your prices improve customer lifetime value? Isn’t it going to upset your existing clients? There is a solution to that: you simply keep the same prices for old clients and increase them for new ones. This tactic helps you increase your annual revenue while maintaining loyalty among your existing clientele. Another tactic is to ask customers to choose whether they want to keep the same plan at a heavily discounted price or choose to downgrade their plan to maintain the same price.
But why should you increase your prices, anyway? As your company grows, you improve your product, hire new employees, and enlist the help of a B2B content marketing agency; your expenses increase. Not only that, but the actual value of your product grows. You don’t only need to rethink your pricing for survival reasons. You can also use your product’s usefulness and tell people that it is worth every last penny.
9. Build Strong Relationships
Increasing customer lifetime value depends heavily on the effort you put into building deep-rooted relationships with customers. eLearning marketing techniques may bring new leads to your doorstep, but it’s the nurturing and listening parts that keep them coming back. Invest in active listening to make your clientele feel respected and valued. Don’t contact them only when you have something to sell. Drop a message every once in a while to ask how they’re doing and if everything is working to their satisfaction. Being proactive helps you notice any potential red alarms and fix them before they turn into problems. It’s best to stay in touch with high-value customers, especially those in executive and decision-making positions.
Moreover, you can conduct quarterly business reviews and ask for their feedback regarding your services and processes. Maybe they will point out things you thought were running smoothly but actually create issues. So, this isn’t simply a matter of digital marketing skills but empathy. If you want to take things further, you can send your contacts “happy birthday” messages for a more personal touch.
Why Is Customer Lifetime Value Crucial For SaaS?
What measures the customer’s worth over a specific period of time? The formula here is the same as we mentioned earlier. Your CAC should be lower than the customer lifetime value. However, nine out of ten startups do not achieve it and thus fail. CAC and CLV aren’t the only metrics you should track in your SaaS sales strategy. On top of those, you need the average purchase value and average purchase frequency rate. The first refers to the ratio of total revenue to the total number of purchases. It helps you understand customer behavior and predict their future purchases. Lastly, the average purchase frequency rate tracks down the number of purchases customers make within a time frame, usually a year. Then, you divide that by the number of unique customers.
Evidently, a SaaS lifetime value calculation and a CLV analysis should be at the top of your priorities when choosing which SaaS metrics to measure. But why? What does this measurement offer you? For starters, it helps you identify how happy your customers are with you. This way, you can segment your customers based on value and intent. Place them on tiers so you focus more on high-value accounts that are bound to spend more. In other words, you can allocate marketing resources more efficiently.
To initiate LTV SaaS growth, you can enforce the same tactics we mentioned earlier. Cross-sells and upsells, onboarding, personalization, and exceptional customer service are the best solutions. Furthermore, you may add sticky features that make it hard for users to leave. For instance, a highly personalized dashboard makes clients feel at home.
Key Takeaway
Churn is like the plague; no one wants to get it, but it’s very easily transmitted. It doesn’t matter if you create the best marketing campaigns that generate thousands of new leads. You can’t even know if these leads are truly interested in your service and if they will come back. So, instead of focusing on bringing in new clients all the time, you should concentrate on retaining your existing clientele’s customer lifetime value. Cross-selling and upselling, personalized offers, wonderful customer service, and feedback help you hit the right spot, like in a game of darts. Loyalty programs and refining your onboarding process promote strong professional relationships and showcase how much you care about each customer.
But don’t focus only on happy customers. Make sure to follow up on negative reviews to see what went wrong, and how you can make things right. Along the way, you will need to create engaging content that appeals to people’s preferences. If you don’t have an in-house team for that, you may need to hire an agency offering content marketing services. The importance of customer lifetime value is the same whether you are in eCommerce or SaaS.
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