Customer lifetime value (CLV) measures the total amount of revenue a company can expect to earn from a single customer over time. This can account for product purchases as well as revenue generated from advertising, event registrations, etc.
Besides just measuring revenue, customer lifetime value is also a hugely important predictive metric. This one number can tell you:
- How well your company is onboarding and retaining customers
- How effective your retargeting, upselling and cross-selling tactics are
- How many customers you need to pursue each year to hit revenue goals
- How quickly you can expect your company to grow
- How attractive your company could be to potential investors and M&A partners
In this post, we’ll discuss how customer lifetime value is calculated, then tell you how to improve your own customer lifetime value through improved personalization, customer retention and pricing strategies.
How is customer lifetime value calculated?
Customer lifetime value is the product of the average customer’s value x the average customer lifespan. So if each customer generates $100,000 of revenue each year and their average tenure with your company is 2 years, your CLV would be $200,000.
How can I improve customer lifetime value?
CLV is a measure of customer revenue potential and retention. To improve CLV, you need to optimize on both sides of this equation.
First, let’s focus on ways to improve each customer’s average revenue. There are two main things to consider here: attracting new customers and encouraging existing customers to buy more.
1. Personalize your content and offers
More than anything, customers want to know that your company cares about their specific needs. The best way to do this? Target your content and offers based on specific actions they’ve taken with your company. Some ideas to get you started:
- Serve website visitors with related articles and content based on their previous browsing and purchase history. These can appear along the side of a blog post or in the middle of the page. This introduces readers to learn more about your topics of expertise and drives them closer to purchase.
- Or you could serve website visitors with pop-ups that are targeted based on the person’s previous purchase history or interactions with your content. (So if they’ve already downloaded an eBook about manufacturing, they’re served a pop-up offering a discount on subscriptions to a manufacturing magazine.) These can be rotated and prioritized based on a customer’s actions or business needs.
Note: The more first-party data you have about your audience, the easier it’ll be to implement personalization at scale. Omeda’s Customer Data Platform doesn’t just collect first-party data, but it compiles that customer data into one central database to be used for marketing automation, email and other personalized campaigns.
2. Use web design to showcase higher price plans
If the average person has a choice between one product and a more expensive option, odds are that they’re picking the more affordable one. But if they see the higher price option first? They might become attached enough to that offer that the cheaper alternative seems less attractive — or doesn’t cross their mind at all.
By harnessing the principles of web design, you can upsell your highest-value products/subscriptions without using excessive pop-ups or add customers to a 10-email drip campaign. Try these tactics on for size:
- Use color blocking to highlight high-value products/plans: Color blocking is the practice of pairing colors on opposites on the color wheel together to create more interesting and eye-catching color combinations. In design, this is often used to draw attention to strategic parts of your website, like, say, your most expensive product/subscription bundle.
- Employ visual hierarchy to draw the eye to more valuable plans: Our brains are accustomed to reading information in a certain pattern, based on language and cultural norms. For example, English speakers read a row from left to right, then drag their eyes diagonally and to the left to start the next line. When the viewer's eyes move in this pattern, it forms an imaginary Z shape, as seen below.So if you situate your highest-value products on the ”corners” the Z, you can attract more attention (and clicks) to those products. Also place your login or Book a Demo button at the top right corner to maximize conversions.
3. Increase sales from cross-promotions through segmentation
Bundling is one of the most effective ways to increase a customer’s total order volume. Instead of selling one magazine subscription at $10/month, you might offer 3 subscriptions at $25/month. Even though you’re generating less income per magazine than you would through your single subscription package, you’re introducing your other publications to audiences that wouldn’t have considered it previously, and earning more revenue than would’ve been possible otherwise.
Segmentation can help you better define audience interests and, in turn, generate more sales from cross-promotions. For instance, you can use Audience Builder to review your audience’s website browsing history, past purchase history and content download activity to see which of your products/publications will have a common audience. From there, you can create groups that are most likely to be interested in each product and target them with specific cross-promotion campaigns.
How to increase customer retention
Keeping a long-time customer happy doesn’t bring the same immediate gratification of landing that new big name.
But even slight gains in customer retention have huge benefits for overall customer lifetime value: Research from Bain & Company has shown that increasing customer retention by 5% can boost profits by 25% to 95%.
To maximize your CLV, you need to prioritize user satisfaction as much, if not more, than user acquisition. Learn how to do it here:
4. Send auto-renewal emails
Sometimes, churn stems not from a lack of interest, but a lack of attention. Maybe someone didn’t remember to renew their subscription or update their credit card information. (Sound far-fetched? These days, people are subscribed to enough products and services that there are whole companies dedicated to identifying and ending unwanted subscriptions.) Reminding people to take these basic steps can be enough to keep them subscribed for another month or year.
You can easily set up these automated reminder emails in your system of choice: In Omeda, you can query anyone whose credit card is set to expire that month, then prompt them to update their information via an automated email. You could repeat that with members whose subscriptions will expire the next month, etc.
5. Supplement onboarding with customer education
Most companies provide some kind of self-service onboarding for new customers. While these courses can create a strong first impression, they tend to cover only basic platform functions. That’s not enough to help customers master your product — and achieve the goals you promised.
To keep your customers engaged over the long term, create various self-service educational tools like a knowledge base or a series of product-focused webinars. These should cover intermediate and advanced features of your product, like alternative use cases or more tech-intensive processes. Besides freeing up resources for your support team, this empowers your customers to go beyond the minimum viable product and achieve their biggest goals with your product.
This demonstrates that you’re invested in your customers’ long-term success and further increases retention.
6. Stay in communication with customers
Trust is a necessary part of any customer relationship. Your customers depend on you to perform basic parts of their job responsibilities, so they need to know what new features are underway and what changes are coming next.
Cultivate that trust by maintaining a regular schedule of communication. For instance, you might send a product update email once or twice per month, then send a monthly or quarterly marketing-focused newsletter (you might even promise a minimum number of monthly emails in your client contracts).
If your customer data platform is connected to your marketing automation platform, your database will consistently refresh with new entries and updates to existing profiles, so you can nimbly add and remove subscribers to ongoing lists or automated campaign.
Don’t neglect your transactional emails, either: They tend to earn twice as many clicks and opens as their promotional counterparts, so they’re a great place to add extra marketing messages and reinforce your brand values (learn how to do it here).
Regularly query audiences that haven’t engaged with your emails in the last three months and add them to a re-engagement campaign to win back their attention (or remove them from your list).
The specific schedule and frequency depends on your industry and audience preferences — the most important thing is that your communications are always consistent and transparent.
7. Invest in customer support
When was the last time you noticed the presence of a referee at a sporting event? Most likely, it was when they made a horrible call that cost your team the game. The same goes for most companies. Most people only really start thinking about how well a vendor are working for them when there’s a breakdown in the customer experience.
Nearly one in three consumers (32%) say they will walk away from a brand they love after just one bad experience. But if you have a track record of advocating for your customers, you’re a lot less likely to lose them to a one-time mishap, like a brief system outage. Show your customers you care by:
- Identifying and addressing recurring customer complaints: Ask your front-facing customer support representatives where customers most often get confused or frustrated by your platform, then work to resolve those issues. (Or better yet, ask customers themselves.) Also look to address consistent knowledge gaps through your content and webinars. Consider setting up a quarterly check-in between your marketing and client success teams for this purpose.And if you can’t address the issue right away? Educate your audience on it by writing articles or posting a Loom video in your knowledge base.
- Reducing wait time by incorporating video resources into your knowledge base: Text-based articles are valuable customer support resources, but some people might have a hard time replicating each step on their own screen (i.e., someone can’t find the blue button in Step 2, so they can’t go any further). Supplement your knowledge base articles with a video of someone walking through each step of the described process. (Use a screen-recording software like Loom or your Mac camera.)This way, that customer who couldn’t find the blue button can watch the video to get back on track, instead of contacting customer support. Besides helping the customer achieve their goal more quickly, this also gives your support team more bandwidth for higher-priority requests.
- Having a pre-written crisis communication plan: Meet with your marketing, communications, developer and leadership teams to decide who will be responsible for handling and distributing messaging to customers during an outage. Determine who will be responsible for identifying and flagging platform issues, who will be responsible for liaising directly with customers and who will handle external communications. Then create a series of templated responses addressing different situations, including full and partial outages, scheduled maintenance. (To save time, create different versions for each channel, including social, email, etc.)
Obviously, not every customer concern can be fully addressed by a pre-written response. But having a template to work off of will save your team precious time during times of crisis.
8. Humanize your brand
Think of your regular coffee shop or bar. Odds are, you're not going there just for the drink you could make at home for half the price. No, you probably go there because the staff greets you by name. They make you feel seen and appreciated, and you leave feeling better than when you arrived.
We may not meet face-to-face with our business vendors the way we do with our neighborhood baristas, but we still want to feel connected, appreciated and understood by the brands we consume: 82% of U.S. and 74% of non-U.S. consumers want more human interaction with brands in the future.
Creating a community around your brand can pay huge dividends in long-term loyalty and retention. Here’s where to start:
- Reward deeper engagement by implementing customer loyalty and referral programs
- Create a Slack or LinkedIn community for your most active audience members
- Crowdsource your content via polls
- Invite audiences to submit questions and poll answers during webinars, then create more in-depth resources on the most frequently asked questions
- Invite customers to participate in roundtables, customer testimonials or case studies at your events
- Host exclusive content, networking circles or in-person family dinners for high-value customers
- Spotlight your own employees and their stories/achievements via social media and email, as well as customer success stories
9. Implement a customer feedback loop
To improve customer retention, you need to understand how people feel about your product. But beyond knowing where you can improve, you need a way to easily distribute feedback to the teams that can act on it. Here are some easy ways to collect actionable customer feedback:
- Net promoter score survey
- Customer feedback surveys or focus groups
- Check-ins with enterprise customers
- Post-event surveys
- G2 or Capterra reviews
After you’ve gathered your feedback, look for common trends and criticisms, then share any relevant information with the necessary teams. From there, your developers, customer success and marketing teams can implement any recommendations, nimbly address customer criticism, and keep your customers happy for the long haul.
Want to leverage your customer data to increase customer lifetime value and drive growth? With Omeda’s end-to-end audience management platform, marketers can collect, unify, activate and evaluate audience data within the same platform, allowing them to personalize outreach and execute cross-channel campaigns more quickly and effectively than the competition. To see it for yourself, reach out to firstname.lastname@example.org today!