Best Tactics To Increase Your Customer Lifetime Value!
Customer lifetime value (CLV) is one of the most important performance metrics for any business. To put it simply, it is the total projected revenue a customer generates for a business throughout the lifetime. The objective of this metrics is to define the financial gain from each customer. Another version of this metrics happens to be Average Profit per Customer. Whichever you decide to use, as a business owner your target is to increase the value as much as possible.
How Do You Determine CLV?
To calculate the customer lifetime value, you need to keep track of the monetary values each customer is generating for you. This should not be a difficult process. You just need to store customer sales data in an ERP solution or spreadsheet and calculate revenue on a continuous basis. After you find out the revenues, just subtract the respective customer's acquisition cost. It will give you that customer's Lifetime Value.
By averaging the lifetime value of all your customers, you get a solid picture of your profitability. A high CLV usually refers that an additional customer adds more revenue to your company. When this happens, it means you can afford to spend more on customer acquisition. Ideally, that should be one of the core objectives of your business.
Boost Up Your Customer Lifetime Value
There are basically two ways to increase the customer lifetime value. One way is by acquiring new customers and the other way is by earning recurring revenue from past customers (also known as customer retention). The second one is the best possible way to increase customer lifetime value. A number of research findings support this statement. Here we are mentioning some of the most relatable statistics:
- It costs five times as much to attract a new customer than to retain an existing one
- Existing customers are 50% more likely to try your new products and spend 31% more than the new customers
- Increasing customer retention rates by 5% results in 25%-95% increase in profits.
From this discussion, it is getting obvious that you need to focus more on customer retention to increase CLV. Now the question is how do you focus on this part? This article is mostly about that. Now we are going to talk about some techniques using which you can build strong customer loyalty and tempt them to spend more on your product! 😀
Maintain Excellent Customer Support
Unsatisfactory customer service is a major reason why people stop using a product or service. Research shows that on average a dissatisfied customer will share their negative experience with 10 other people. Furthermore, 13% of the dissatisfied customer will share it with more than 20 people.
Don't you think it is too damaging?
In order to increase customer lifetime value, make sure you have an excellent post-sale support. Otherwise, people will quickly lose interest to use your products. You must have a system in place which will allow the customers to contact your support team smoothly. It would be a plus to have a support forum and great documentation on the website.
Change The Billing Cycle
When the customers are using your products for a long time, the average CLV is likely to increase.
So you need to think carefully about the billing cycle of your products. Is it something that the customers pay for a month or two? If yes, it will not add up to a high CLV. You should find a way to change the billing cycle to a longer one.
When you have a customer base that stays with you for at least a year, it generates predictable revenue for you. In addition to that, it gives you a better scope to earn some extra cash by upselling or cross-selling products. Therefore it is recommended that you switch to an annual billing cycle if your average customer lifetime is less than 10 months.
Create Bundled Products For Customers
This is a time-tested way to hook your customers into using your products. If you have different items for sale, group them together and offer them at a relatively lower price. A common tendency of the customers is to think that they are missing out the other product by purchasing either of them. It lures them into buying the bundle. This way you can effectively increase the customer lifetime value.
Bundle works most effectively with related products. For example, when you go out to buy a mobile set, more than often you feel interested in an earphone or phone case. Many of us seek a set of external keyboard and mouse right after buying a laptop. These are the optimal cases for product bundling. You should think about how to make the best use of a similar case for your products.
Recommend Complementary Products To Customers
You can do it in several ways. For example, you can show a list of products at the sidebar. It will allow you to generate more interest in your products. Furthermore, you can suggest complementary products to your customers during checkout. Products offered as cross-sell have a higher chance of getting purchased if shown during checkouts. This is a strategy that you must apply to have a higher average cart value.
Launch Limited Time Exclusive Offers Occasionally
Limited time offers build a sense of urgency to the customers and greatly impacts their purchasing behavior. This is why Black Friday, Cyber Monday deals are so popular among them. But in order to get maximum benefit, you must use all your social channels to notify them of the offer.
Surprise & Delight Your Customers
Who doesn't love surprises? As a part of your marketing strategy, you should take an interest in your customer's activities and preferences. Based on that, you can design giveaway campaigns for them. It can turn out to be viral on social media and the visibility your brand will get can be enormous.
Customer research varies depending on the nature of the product. While some can be done through direct one to one phone conversation, other involves using advanced web services. You can read this piece to learn how you can give it a go.
But Reward Loyal Customers More Often
Loyal customers are the ones who have the maximum impact on customer lifetime value. It is absolutely essential that from time to time you give away things that matter to them. In turn, it will help you to achieve higher brand affinity and create a community of supporters!
Let me give you an example of an excellent loyalty program. The Banana Republic credit card users can have a Luxe status after achieving a minimum spending level. It rewards them with various offers like free shipping for online orders, choose your own sale day and so on.
But Most Importantly…
After all, is said and done, you should keep in mind that these techniques will not work if you do not have a great product. So, ensuring the quality of the product should come before anything. The customer-centric approach that we keep stressing about should be reflected in your product roadmap as well. If you can get these things right, the customer lifetime value will grow organically from the start.