on September 16, 2020 (last modified on November 15, 2021) • 25 minute read
Let’s get straight to the point. There are two ways to grow
your business – first, by acquiring new customers, and second, by retaining
existing clients and increasing customer lifetime value (CLTV).
While there’s nothing wrong with working hard to grow your
customer base, it’s important to remember the value behind customer retention. The
longer you can keep a customer, the greater is the provided value during their
lifetime relationship with your brand.
So this is why, in this post, we’ll share everything you
need to know about Customer Lifetime Value, starting from learning how to
calculate it, to which tips to follow to boost your CLTV.
Here’s what we’ll learn:
Customer lifetime value is the amount of revenue that you can expect from a customer over the period that your service will be provided to them. So, this metric is clearly dependent on how long a customer will use your service and how much they’d be paying you.
Be it a consumer product or a service-based product, the essence of CLTV is similar to each of them.
And for a healthy business, this is one of the metrics you should be tracking. So, let’s see how we calculate this.
Well, there are different ways as to how SaaS companies measure this metric. One of the easiest ways is simply calculating the average customer value (considering all your customers) & in-turn their lifespan.
CLTV = Average customer value / Average customer lifespan
You can also calculate this for a single customer and then average it out for all customers.
The formula for calculating CLTV is:
CLTV = ARPU * Gross Margin * LifetimeHere, ARPU = Average Revenue Per User & Gross Margin % = (Revenue – Cost)/Revenue
One of the most crucial ways to grow any business is to focus on retaining existing customers and increasing their lifetime value (CLTV).
And like I mentioned before, both of these methods indicate that customer lifetime value clearly depends on the lifespan of the customer. So, let’s dig into the unique & simple tips provided by our experts on how to increase your customer lifetime value.
In this section, we’ll look at ways companies across the different horizons (SaaS/B2B, B2C) delight their customers, make them stick to their business, and ultimately increase their CLTV.
It’s not easy to know which KPIs to track for sales, marketing, and customer success in a SaaS company. There are many possibilities, and so much to do! Why not start with the basic metrics that determine the health of your company?
If you want to track these in Stripe, you can do it easily by building a plug-and-play dashboard that takes your Stripe customer data and automatically visualizes the right metrics to allow you to monitor your SaaS revenue performance at a glance.
You can easily set it up in just a few clicks – no coding required.
To set up this Stripe dashboard, follow these 3 simple steps:
Step 1: Get the template
Step 2: Connect your Stripe account with Databox.
Step 3: Watch your dashboard populate in seconds.
The most pointed out tip by our experts is to check-in with your customers regularly.
A. See if they require any help
B. To understand if they’re happy with your service.
“Even if they aren’t asking directly for support, they may be getting disenchanted with your product and considering alternatives. Checking in regularly with customers ensures that you can get ahead of any problems, provide better service, and keep customers from churning,” says Andy Cabasso of Postaga.
Hans van Gent of User Growth agrees “If you want to increase your CLV you need to stay on top of mind with your customers. And the best way to keep on top of mind is to communicate on a regular basis.”
And what are the best ways to keep in touch?
“Nowadays there are a lot of different ways to communicate with your customers – voice, chatbots, plain old email, but whatever channel you choose, make it one-to-one, make it personal so that your customers will feel valued,” says, Gent.
Each customer is different. Some may prefer content guides to understand your product while some may prefer a 1-1 onboarding.
Ashwini Dave of Acquire, explains this tip, “According to my practice, if customers feel they have a personal relationship with someone in the company, someone they can forever ask a question, that connection strengthens the likelihood of them staying for the lifetime.”
How does this help? “This strategy increases the retention rate and lifetime value and the add on is the customer interactions become more personalized and pleasant,” says Dave.
Not just after acquiring the customer, you provide exceptional support, but it’s necessary before they make the purchase too.
Kat Kalmykov of Thankful.ai, says “Providing personalized service interactions is an effective way for brands to strengthen their connection with customers and ultimately build loyalty.”
What’s the best way to approach the pre-order customers?
“The pre-order ticket types are generally where the CS team can take a consultative approach and make strong recommendations on which products/services the customer might enjoy/see benefit from which generally leads to a sale and boost in revenue which ultimately boosts CLTV.”
And this is possible by this, “ Have your CS team well trained in your product offerings and be able to make recommendations to your customers based on product preferences. This is the approach that can drive the CS team from being a cost center to a profit center” says, Kalmykov.
A customer might have purchased your product/service for a specific use case, but there’s a lot more than you can provide them via your business. Leverage that. Educate them about all that they can do with their subscription.
Tyler Burch of BoardActive, explains this “Increase the amount of customer success resources that are created (webinars, guides, etc.) for account executives. When you teach your users how to use your platform/services better, they get more value. In turn, they end up sticking around longer.”
Nick Hollinger of Visitor Queue, says something similar: “Actively encourage clients to properly set up their accounts by either regularly inviting new clients to onboarding calls or pushing them to onboarding resources. The more that the clients are getting out of your system, the less likely they are to churn, which leads to increasing CLTV. To get clients to get more use out of your system, sometimes you have to hand-hold via onboarding resources.”
Ain’t this an easy thing to do to make customers do more with your product? Yes, it is. All you need is a kick-ass customer success team and resources to educate them.
Something on the similar lines of educating your customers and making them use your product, upselling & cross-selling techniques are also a great way to make them stick around. With these, they not only stick to your product/service but also increase your revenue.
“To increase your CLTV (Customer Lifetime Value), you can offer bundles, cross-sells, and upsells to your customers. Your average cart will increase almost automatically and, therefore, your CLTV as well” says Jonathan Aufray of Growth Hackers.
It’s the easiest method to increase your revenue. Why?
Kevin Picton of Sharpen It, explains “Existing customers already passed the know, like and trust barriers, so getting them to buy again is easier than trying to find a completely new customer.”
And Laurie Wilkins of Call Outdoors also agrees to this. “Since they have been your customer and have built trust with your business, there’s a huge tendency that they will rely on you from now on”, says Wilkins.
But there are a few important tips to follow while upselling so you don’t end up annoying your customer and losing them.
Irene Lopez of Fort Worth SEO, says “An effective way to increase your CLTV is through strategic upselling. This means upselling to your customer at the right time. Most customers do not like high-pressure sales so upselling to them during a time that is irrelevant to them will only sour your relationship and you can run the risk of losing that customer altogether.”
So what’s to be done here?
“Be strategic. Analyze your customer and see where they could be optimizing their products and services and offer them deals for those products or services at the time they need it most.”
“Be ready to show them how these new products/services will benefit them but give them time to make a decision. By not pressuring your customer into a sale, they see you more as a helpful partner than a high-pressure salesperson.”
“After a while, you will notice that your customer will most likely have more products/services now than they did at the start of your partnership”, says Lopez.
So, pull up your socks and plan your next upsell & cross-sell strategy.
Referral program or simply word of mouth marketing is zero-cost marketing for your business. It’s the best way to increase customer lifetime value without you doing much.
How does this work?
Gwen Beren of Illuminous Marketing, explains “By making your own customer a driver of other customers, you exponentially increase the CLTV of that single customer.”
For example, Customer A with CLTV of $500 refers to 3 friends, who match that original customer’s value. Customer A now has a value of $1500 and more. Because if one of those new 3 friends refers to 3 other friends, Customer A now has a CLTV of $3,000. You have just increased the CLTV of Customer A from $500 to $3,000 by creating a smooth and rewarding mechanism for Customer A to refer to new business.”
But this has to be done smartly.
Vince Massara of EduTest Labs, says “This doesn’t have to be a “you get a discount when you refer to someone” system. In fact, those systems don’t work as well as calling your happiest clients or customers and seeing if they know anyone who they can refer to.”
“If you have a customer who does your marketing for you, that’s basically doubling their lifetime value.”
Never forget to communicate via different channels after your customer has made a purchase.
Leigh Sevin of Endear points out an interesting example.
“Your job isn’t over when the sale clears. Here’s a cool example of great post-purchase engagement: In 2015, Patagonia launched The Worn Wear Mobile Tour that offered not only to repair customers’ gear on the spot but also to teach them how to make these repairs on their own in the future.”
“The tour accentuated the brand’s focus on sustainability and gave them an opportunity to interact with customers face-to-face outside of a sales scenario.”
“The goal of marketing in retail is to extend the lifetime value of a customer, so finding relevant, brand-related ways to be a resource to customers is certainly going to encourage customers to stay loyal to you”, says Sevin.
What can you do for post-purchase engagement?
Heather Quitos of SmartBug Media, adds some ideas. “You can create loyalty and longevity by delivering content and exclusive offers post-purchase.”
“Some ideas: provide helpful tips on using your product/service, cross-sell or upsell your most engaged customers, or include your champion customers in the product-building process with a customer advisory board”, says Quitos.
Mehul Rajput of Mindinventory, says “One of the most crucial ways to grow any business is to focus on retaining existing customers and increasing their lifetime value (CLTV).”
Isn’t it so obvious? Retain the existing ones.
“The most useful tactic to increase CLTV is to provide 24/7 Customer Support. It has been proven that people always expect the fastest response to their problems and the best way to do so is through round-the-clock customer support. And, you should check that your team responds to customer tickets as fast as they can.” You can track and assess the ability of your customer support agents to respond and resolve customer enquiries in a timely and efficient manner using this support tickets dashboard.
Nikola Roza of SEO for the Poor and Determined, explains this to us. “People are in a hurry and problems are a bothersome bunch. When your customer encounters a problem, they want to solve it as quickly as possible. And live chat helps tremendously. It lets your staff handle problems as they arise and this keeps customers happy.”
Why is Live Chat preferred? “Live chat makes a brand feel more human. Because customers can see that there’s a real human on the other side and not some impersonal chatbot” says Roza.
“You may lose a potentially high lifetime value customer by one negative interaction”, says Melanie Musson of FreeAdvice.
So ultimately it just doesn’t depend if you have 24*7 support available. It boils down to the quality of support you’re providing.
Brett Prentiss of Instinct Marketing, says “How you maintain the same quality of customer service is simple, be genuine. Look out for them. Answer their calls at your earliest convenience. Ask your customer what trouble’s them and truly give them a solution that continues to solve the issue at hand. Once you do, continue to do it at that same level.”
Apart from the quality of support, look out for providing Omnichannel Support.
Mike Sadowski of Brand24, adds “We live in the digital world and studies show that 98% of people use two or more devices on a regular basis. For a brand, this means that a customer needs to be able to choose how they get in touch with you. Gone are the days when a telephone number and email address were enough. In 2020, a brand really needs to excel at omnichannel support so that customers are able to get in touch on Facebook.”
Support is always there to help your customers out there. But what if they have a seamless experience before they even need support?
Andrew Schutt of Schutt Media, says “The simplest, yet most overlooked, way to increase your customer LTV is to simply provide a better experience. Maybe your product/service could use some improvements, or maybe your customer success team could be doing a better job of making sure your customers are satisfied.”
“At the end of the day, it all boils down to how well you solve your customer’s problems. Solve your customer’s problems while giving them an above-and-beyond experience and they’ll never leave.”
How does this work? What can you do to understand what are the pain points of your customers & act upon it?
Srish Agrawal of A1 Future Technologies Pvt. Ltd. adds an effective tip, “Listen to your customers and act upon their feedback. Try figuring out what they perceive about your product or services.”
“Create a survey or a poll to get detailed and actionable feedback. Make sure you allow your customers to make suggestions for the things you didn’t list. Appreciate their feedback with some surprises or incentives that encourage them to open up.”
Sometimes, you have to look at what lags in your product even before a customer points it out. Continuously working on making the product/service better improves customer retention.
Neal Taparia of Spider Solitaire, explains this effective tip “ You’ve done the hard work of acquiring the customer, now you just have to find the levers to have them stick around as much as possible.”
“Look at how your highest LTV customers use your product compared to churners, understand the gap in product usage, and address it to get customers to be more engaged. Or, do user studies on what else your customers want and build it so they can continue using your product.”
If your customers are not getting enough value and satisfaction from your company, they are more likely to churn. So, use this customer success dashboard to monitor your business’ customer retention rate in real-time.
Liam Barnes of Directive agrees “The best way to improve customer lifetime value is by improving operations or improving your product, and then communicating and delivering that value to your customers.”
As a product/service company, your customer would value you, understanding that you care for humanity.
“A great way to increase your CLTV is to show the humanity that fuels your company.”
Meaghan Thomas of Pinch Spice Market, says “People want to feel good about where their dollars are spent. We reinforce our commitment to supporting organic farmers around the world through imagery and content in product inserts, emails, and social media. Something as simple as sharing pictures of our farmers helps our customers feel more personally connected to them.”
Here are some good ideas to start this: “Our customers also love it when we launch marketing campaigns where we donate a percentage of sales to a nonprofit relevant to our product. When you open the curtain and show the people and genuine hearts behind your business, customers stay connected,” says Thomas.
Going behind your prospects (via retargeting) who once showed interest in your product is a smart way to get them back.
Ido Raz of Bigabid, says “Retarget…smartly! You don’t want to bombard your user with endless retargeting messages. Not only is it not effective, but it can also actually be off-putting to an app user or viewer of the ad content you are delivering.”
“You want to restrict yourself to optimally timed ads that are deep-linked to an app game, website, and such, but in order to determine the best timing, you should look for high-quality data points.”
Here’s an example:
“We examine an app game by breaking it down to at least 10 resolution points (much more than what the app stores provide) and defining the user journey and his/her behaviors compared to other users of the app, etc. This allows you to predict what would be the best time to remind the user to engage with the game over time, thus being proactive about increasing their LTV” says Raz.
Kaleb Ufton of EKOH Marketing, says “Look at purchasing behavior analytics and understand when and why customers make multiple purchases. This allowed you to automate retention campaigns via email or paid ads to engage customers at critical points which, if left alone would cause them to stop being a customer.”
Email Segmentation might not be a direct tip to increase your CLTV, but will help you in understanding and executing the other tips.
Dan Young of Loud Digital, says “With email marketing automation, you can entice customers who haven’t visited your website in a while back with an irresistible offer or give VIP customers early access to product lines.”
Scot Nery, says “Once you find the personas of your top customers, you can target them and serve them more fully. This reassures your favorite customers that your company is on their side and helps you attract more customers who want the same from your company.”
“When your customers feel that your company is personally attending to their needs, other actions the company takes will be interpreted through this advocate filter.”
Sometimes serving your top customers isn’t part of your core service. If for example you’re a florist, and you realize your favorite customers all have young kids, it could be as simple as sending out a video with tips for having kids at home during the quarantine.
“Your bottom 20%? You reach out to them and offer them a free call. Spend a little outbound marketing on a hot lead and see if you can tweak them to see the value in what you offer.”
“Now, add next three years up, and for each demographic and you will have their lifetime value, increased. You would do this twice a year or annually, to continue adding to the lifetime value of each patient, client, or consumer.”
When discussing lifetime value, it is important to look at regressive analytics.
Mark Langsfeld of mTab, says “The key to increasing CLV is understanding the value of your customers, which is deeply rooted in data. In today’s world, this data is fragmented across an array of internal and external sources surrounding your organization, from the point of sales platforms and e-commerce systems to customer surveys and buyer studies.”
“Integrating and synthesizing these data sources into a single-source view of the customer is critical to gaining a holistic understanding of their behaviors, attitudes, preferences, and engagements and how these shift over time.”
“This intelligence allows the organization to effectively elevate and extend the value customers deliver to your business.”
Michele M. Paiva, explains this with an example.
“ What have your last five years looked like for the 20% of the clients that are your top clients? What about 60% in the middle?”
“Slice off the 20% at the bottom right now. Let’s first work with the top 20%. In what ways can you offer a more personalized “VIP” service to them? Are they segmented even among themselves?”
“Survey them. Don’t simply guess what they might want.”
“After you have this, water that down a bit. For instance, say you survey them and you own a Pet Franchise and they want to have a vet on staff for clinic hours, well, then maybe your 60% might be happy with an on-call vet tech to talk to via phone and email.”
“Maybe your top 20% will pay $50 for a quick clinic base rate. Then the lifetime value is going to be at whatever they have averaged now, plus $100 because most pet owners go to the vet twice a year, at minimum.”
“You’re 60%, you do the same, maybe the email and call is a $25 outreach fee, then they might see you more often and they might be $50 and then once in person for $50, now they are actually $150 plus their average.”
Going that extra mile for a customer will definitely make them feel valued and loved by your brand.
James Pollard of The Advisor Coach LLC points out this interesting tip “ For example, if you have a continuity offer (such as a newsletter or membership website), you can send your customers gifts to let them know you appreciate them.”
“Here’s how the math works…Let’s say you have a membership site that costs $99 per month and you send a $20 gift (such as a t-shirt or mug) that gets someone to stick around for an additional two months. That $20 investment got you an extra $198, which is a 9.9X return.”
“Never underestimate the power of giving gifts and showing your customers you appreciate them. It goes a long way.”
Along with keeping in touch with your customers, incentivizing your customers is the most-sought after method to increase your CLTV.
“People will return to companies that treat them as a valued individual, customer, and friend, making showing customers how valued they are,” says Stacy Caprio of AcneScar.org.
Phil Forbes of Packhelp, explains “Knowing your customer’s average cart spend, and incentivizing them to spend a fraction more at each repeat purchase can make massive differences in CLTV.”
“Once your customer knows and trusts your brand, it’s easier to make them buy from you again and again, but giving them a reason (such as a tired percentage off) makes them spend a fraction more than they usually do.”
What’s the best way to incentivize?
Andre Oentoro of Breadnbeyond, says “When we are doing this, we are identifying customers that are already with us for a while, and offer some freebies and special promos. In a way, we’re providing them a better service, and this also works as a thank you gift for them as our loyal customers. Happy customers are always equal to sticky customers.”
Another way to do it:
John Pinedo of Freedom Bound Business, adds “An effective way to increase a customer’s lifetime value is to run promotions on existing services one to two times per year.
“I once worked for a client that offered an online tech support service plan to both existing services plan customers, and new business leads 1-2 times per year.”
Who is this tip most effective for?
“One effective way of increasing your customer lifetime value is to find your core customers and offer exclusive sales and discounts. Once you can identify the criteria for what consists of these core customers, you can email them exclusive deals and communicate that they’re receiving this because they are a valued customer” says Brandon Chopp of iHeartRaves.
“Offering value-added services and customized business solutions is an effective way of increasing your customer lifetime value.”
“While there are a ton of businesses offering the same products or services that you have, having your own set of value-added services that customers can’t avail elsewhere will definitely make your business solutions a must-have.”
“There’s a difference between providing standardized service and listening to your customers to address which part of their business is hurting them the most. Be aware of your customers’ needs and address their issues promptly. Doing so will surely increase your customer lifetime value” says David Sanchez of Digitalis Medical
How does the customization of services help?
Damien Martin of Shufti Pro, explains “Developing a lasting relationship with your customers through customization is the tried and tested technique to increase CLTV.”
“Offer them with customized services (allow them to customize some features of service/product). Maintain a connection with your customers and take regular feedback from them to enhance your service as per their requirements. Customization helps achieve customer trust which ultimately increases customer lifetime value.”
Moss Clement of Moss Media, says “The best marketing tactic I use to increase customer lifetime value is to “offer my clients free upgrades.“ It works efficiently well for me. How? I have clients who actively use my B2B freelance writing service, and I classified them as “my top writing clients.”
“Hence, their being in that category qualifies them for premium services. So, I give them free upgrades when necessary.”
Let’s understand this with an example.
“For example, last week, one of my top customers reached to me to create and deliver a 1,000 to a 1,200-word article. We agreed on terms, and I went to work.”
“In the end, instead of a 1,200-word blog post, I gave him a 2,200-word article draft. He was so excited that he referred me, two new clients, within three days.”
“Consequently, providing free upgrades or premium services to consumers is one of the best ways to extend customer lifetime value (CLTV) while attracting new clients to your business.”
“Therefore, look for customers who actively patronize your business and give them premium products or services. As a result, they will stick to your business as loyal customers and serve as brand advocates” says, Clement.
Apart from the incentives & promotions you run, letting the customers choose how they wish to pay you is an easy tip to implement.
Rameez Ghayas Usmani of PureVPN, says “Offering more flexible pricing models are the effective way for increasing your customer lifetime value (CLTV).”
“There are many instances where SaaS products delay payment dates and offer clients an easy way to pause their subscription (so they can continue when the situation settles down).”
So, these were the best methods & some of the easiest ones (as provided by our experts) to implement, that can prove to have a high-impact on your CLTV. Select the ones that are not being yet implemented in your business, and see how your CLTV skyrockets.
“You are the best judge of your company and what suits it. So keep on experimenting with tips pertaining to CLTV. Value your customers, your revenue will skyrocket in a jiffy!” says Srish Agrawal of A1 Future Technologies Pvt. Ltd
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