How to Improve Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is an important metric which shows how much profit your company can make from an individual customer over time. CLV is widely under-utilised. A recent study showed that only 34% of respondents fully understood what customer lifetime value represented and 69% said that their company should be doing a better job of measuring it.
Many factors contribute to the calculation of CLV and it is important to try to get the most out of your customer relationships so that CLV is high. Below we detail how to simply measure CLV and offer tips for increasing the CLV of your customers.
Measuring CLV
Most simply, CLV = customer revenue – the cost of acquiring and serving that customer.
While this CLV formula may seem simple, determining what it actually costs to acquire and serve your customer base can be very complicated with all the factors that play into your customer relationships. It can be easy to forget that there is more to a customer’s value to your business than the total revenue they bring. Therefore, an important factor to take into account when considering CLV is your customer acquisition cost (CAC). Gaining new customers as well as maintaining relationships with existing customers can be expensive and will greatly affect CLV. You need to take into account all of the expenses related to getting that customer on board before they even begin spending with you. So the true cost of customer acquisition can be rather high. That is why it is so important to maintain relationships with your existing customers, as it costs much more to gain a new customer than to hold onto an old one.
Tips to Improve CLV
1. Provide best in class support
High-quality customer service is the best way to gain happy, loyal customers who will continue to return to your business time and time again. Offering poor customer support is a surefire way to lose customers, so it is in your best interest to invest in offering the best service in your industry. Excellent service is what draws new customers in and enhances customer retention. It’s important to your reputation as news of bad service can spread and affect any likelihood of repeat purchase from an existing customer or the acquisition of a new customer.
Great customer service is expensive, but it is well worth the investment cost. By adopting things like 24/7 support, social media monitoring, live chat or an extensive knowledge base, your customers will have a lot less trouble interacting with you. Easy service is good service so offer convenient, efficient service throughout the customer journey will have a major positive effect on your customer retention rate and CLV.
2. Create an amazing loyalty program
Many brands have loyalty programs but often customers forget that they have even joined because the perks just aren’t good enough. By creating an irresistible loyalty program, you will increase the duration of average customer lifespan and purchase frequency. This is of particular use to retail and e-commerce businesses.
A good customer loyalty program will offer points or perks that make customers feel that they are gaining value from the brand by spending with it. Whether your program offers points per spend, free shipping or exclusive offers, it can create a more certain and constant revenue stream without a high cost to your business.
3. Listen to your customers
Learn what your customers think about your business by asking them. Use NPS and customer satisfaction surveys to guide your understanding of how likely your customers would be to recommend you to others and how happy they are with your performance. Customers who you learn are promoters of your business, those who would gladly recommend you, are very valuable as they can be your connection to acquiring new customers. Customers who are detractors, those who would not recommend you, can be costly as you may lose their business. Use opportunities to identify customers who are unhappy and try to keep them onside so that they don’t leave for a competitor. Identify happy customers and encourage them to promote your brand further.
Of course, listening to your customers is useless if you do not take action on what you learn from their feedback. Use the feedback to expand programmes that are working and improve those that are not. Share your improvement plans with your customers so they know you are taking their evaluations seriously and that you value their opinions.
4. Offer a subscription model
This is the quickest and easiest “win” of the tips offered here. To increase short and longterm revenue, offering a subscription model can be a highly effective method. Obviously, this isn’t applicable to all business types or industries, but it can be good for your bottom line and your customers. It gives you a guaranteed recurring payment, which is a better guarantee than the average customer spending relationship. Whether your subscription model is based on monthly or annual payments, it also contributes to the future revenue of a customer.
For customers, a subscription model usually offers ease, convenience and a discount compared to repurchasing on an ad-hoc basis. It creates a long-term relationship between you and the customer, which in turn increases their CLV. It also strengthens their bond and loyalty towards your brand, so they are less likely to leave or to make purchases elsewhere.
5. Feature your biggest supporters
Make the most of your existing customers’ public support for your brand by sharing the content that they tag you in across your website and social media channels. This is a form of consumer-generated content (CGC) which is essentially free marketing. It can easily supplement existing steps you are taking to solicit customer reviews, feedback, comments or social sharing from your customers with minimal cost. Plus, potential new customers are a lot more likely to purchase based on the word of existing customers than on your word and marketing efforts alone.
CGC shows your customers that you appreciate and value them. Using and encouraging CGC increases the lifetime value of a customer as it eliminates some marketing and content creation costs while expanding the promotion of your brand via your valuable, happy customers so their friends and family might be persuaded to become customers too.
