There is no shortcut for achieving rapid business growth. Still, you can improve your sales by focusing on retaining your existing customers and acquiring new customers. Customer retention would be beneficial in the long run because it is 5 to 25 times more expensive to acquire new customers than retaining the existing ones. In addition, retaining customers will save your acquiring cost and improve profit rate; according to research, a 5% rise in customer retention rate increases by 25% to 95% profits.
Your every customer is not the same. Some of them will help you earn more revenue and profit than others. Therefore, you need to nurture your efforts and focus on sales to achieve profit. The longer you keep a customer, the greater would be Customer Lifetime Value with your brand.
Understanding Customer Lifetime Value
Customer Lifetime Value (CLV) is a projection of the net profit a customer will provide a company. It represents a customer’s value to a company over a specific period. The basic formula expresses CLV as a product of customer margin and retention rate relative to discount adjustments.
The process to Calculate Customer Lifetime Value(CLV)?
Before we dive into the formula on how to calculate Customer Lifetime Value, let’s have a look at three important terms that would use in the CLV formula.
Average Buying Value: It’s the average amount that customers spend every time they buy. Divide the total no. of sales by the exact number of purchases that will get you ABV.
Buying Frequency: It’s the no. of times a customer has purchased from you during a specified period. Divide the total number of purchases by the number of customers for the given period, and you will get the BV.
Customer Value: It’s the total amount spend by a customer in the given time duration. Multiply the average buying value with the buying frequency.
Formula to Calculate CLV:
CLV = Average Purchase Value * No. of Customer Purchases per year * Average length of Customer Relationship
For instance, if you have an online store and one of the customers buys a dress costing Rs. 1000. If the same customer buys three dresses every year, then it would sum up to Rs. 3000. Purchasing the same three dresses for 20 years would be 60,000. It would be an incredible CLV number coming from one customer.
23 Proven Ways to Improve Your Customer Lifetime Value (CLV)
- Improve Customer Onboarding Process
- Create Informative & Valuable Content
- Provide Incredible Customer Service
- Foster Good Customer Relationships
- Gather Actionable Feedback
- Improve your Customer Experience
- Use Customer Experience Metrics
- Use actionable survey questions to increase CLV
- Detect Pain Points and Provide Solution
- Consider Customers who haven't shared any Feedback
- Offer a Personalized Experience
- Send Personalized Responses with an action plan
- Opt for Up-Selling and Cross-Selling
- Implement a Dunning Management System
- By focusing on all stages of the Customer Journey
- Leverage 100% Customer Data or Conversation
- Improve Your Average Order Value (AOV)
- Improve Your Purchase Frequency (F)
- Improve Your Gross Margin
- Improve Churn Rate
- Use Referral Program Scheme
- Set Expectations with Customers
- Use CLV Data Effectively
There’s no point in calculating the CLV until you don’t know how to use the information to enhance your products and services further. Let’s explore some of the proven strategies that businesses should employ to increase their CLV and generate more revenue from the existing customers.
1. Improve Customer Onboarding Process
When it comes to Customer Satisfaction, you should put all the efforts into refining your Customer Onboarding process that can lead to business growth. It will help new customers engage more with your products and services and encourage them to keep coming back to your business, increasing CLV. However, never forget that poor onboarding can result in Customer Churn.
Make the onboarding process as straightforward as possible. You can do it by using walkthrough guides, interactive videos and tutorials, knowledgebase help articles, and other useful content that might be useful in achieving customer’s goals.
2. Create Informative & Valuable Content
What is the best way to engage with your consumers and providing helpful information? Each product and service of your business has something to offer. It would be best if you found a suitable medium to share informative and valuable content. Sending enticing emails to your customers is one best communication methods to share valuable content with your customers.
Suppose you are a SaaS-based product company that develops Customer Feedback Software. Sending newsletters to your customers will give them an insight into what’s happening in the company and update them about new product features.
3. Provide Incredible Customer Service
What is the one factor that can set you apart from your competitors? Great Customer Support. Providing it will drastically improve your business growth and customer retention rates. Dissatisfied customers will opt for your competitors, but serving them right will make them your loyal customers.
Offer Omni-Channel Support
52% of customers stop buying from the company due to bad customer support service experiences. Your omnichannel support options include - In-person interactions, Social media support, Email support, Phone support, and Live chat support. Omnichannel Support helps you to deliver repeat information that customers may already have. Omnichannel support ensures high sales and profits.
Provide 24/7 Support
According to the research, 24/7 Support connects with your customers as it has the potential to increase 4.5 times more company’s revenue. If you have a large customer base, you can deliver dedicated customer service through 24/7 Customer Support Service. Stay connected with your customers via chatbot, Knowledge Base, and FAQs.
Monitor Social Media
There are currently 2.8 billion social media users worldwide. This statistic represents that over a third of the world’s population uses some form of social media to communicate. Customers are using social media networking sites to share reviews and feedback and have popularly become a word-of-mouth marketing platform. Social media can offer deep insights into ways that can help you improve Customer Satisfaction. Make sure you are active and respond to your customers within 24 hours. Hold frequent Q & A sessions and live chats.
Maintain a Knowledge Base
Get yourself available at different mediums like Knowledge Base, Help Desk, FAQs, video tutorials, chatbox, Agents, etc. Customers actively seek out the specific information they need without having to wait for long.
The best way to reach out to your customers is to opt for Omnichannel Customer Support. It means to be present on all the channels where your customers are present. You need to research all channels your customers use before making a decision.
4. Foster Good Customer Relationships
It’s a known fact that weak customer relationships lead to Customer Churn. Therefore, for constant business growth, you need to build strong customer relationships. During all the customer interactions throughout the customer journey, you need to bond with them.
The best way to build a long-term relationship with your consumers is to listen to them, understand their needs, and ensure that they are dealing with experts who are omnipresent to resolve their problems.
5. Gather Actionable Feedback
Happy customers will eventually turn to your loyal customers. You can’t make them happy till the time you don’t know their concerns. You need to collect actionable Customer Feedback and work on it that can help you enhance your products and services.
What could be a better way to improve your products and services than conduct a Customer Satisfaction Survey. It will help you collect valuable feedback, fix all the issues, and measure all three important CSAT metrics – NPS, CSAT, and CES.
6. Improve your Customer Experience
Good Customer Experience will also increase Customer Loyalty, which is also an essential contributing factor in CLV. As per the research, approximately 55% of consumers will prefer to pay more for an incredible customer experience. If your consumers get the best customer experience from your company, they will not look for alternatives.
Conducting online surveys at frequent intervals can help you create stellar products and services and boost customer experience.
7. Use Customer Experience Metrics
73% of companies with above-average Customer Experience (CX) perform better financially than their competitors. Customer Experience or CX Metrics are KPIs that enable you to measure customer loyalty and satisfaction. There are three Customer Experience Metrics available in the market:
- Net Promoter Score® (NPS)
NPS is a popular customer experience metric that measures the loyalty and satisfaction of your customers. NPS provides a simple NPS Question - How likely would you be to recommend our product, service, or brand to a friend? Based on their experience, your customers recommend your brand on an NPS scale of 0-10. Based on their responses, you can segregate customers into three categories - Detractors (0-6), Passives (7-8), and Promoters (9-10).
To calculate the Net Promoter Score, you need to use the simple NPS Calculation formula to subtract the percentage of Detractors from the percentage of Promoters to determine your Net Promoter Score. This NPS can range from -100 to 100.
Net Promoter Score = % Promoters - % Detractors
Customer Satisfaction Score (CSAT)
Customer Satisfaction or CSAT is a customer feedback metric that measures a customer's happiness with your services with the help of a customer satisfaction survey. A CSAT survey asks customers to rate their experience with a product, service, interaction, or the overall experience on a rating scale of usually 1 to 5 and then asking the reason for their rating.
The simple formula to calculate the CSAT:
CSAT (%) = No. of positive responses / Total No. of Responses x 100
Customer Effort Score (CES)
Customer Effort Score or CES is a Customer Service Metric that measures the perceived levels of effort your customers have to put into a specific interaction with you to get their work done or achieve their goals. The core idea to develop the CES is to track how much effort was required on the customer’s side to solve an issue and reduce it to boost the loyalty rate. So, your Customer Effort Score formula:
CES = Addition of all Scores ÷ Total number of Respondents
Trigger the Customer Experience Metric Surveys - NPS, CSAT, and CES immediately after specific interaction or any particular transaction to capture the real-time customer feedback based on their fresh perception.
8. Use actionable survey questions to increase CLV
Surveys help you to interact with the customers and keep them engage in your brand. To enhance your Customer Lifetime Value, create effective surveys having relevant questions that efficiently target your market. While designing surveys, keep existing customers in mind because surveys for improving CLV also increase customer retention.
The following includes pertinent questions to boost CLV:
What do you feel is missing in [niche, industry, product]?
How can we better improve this product/ experience?
What would you like to see in this product/ service/ experience?
What is the most aggravating thing about buying [a product or service]?
How can we make the purchasing process more efficient for you?
On a scale of 1-10, how would you rate this company/product/service?
What product features would you like to see added in the future?
If the price wasn’t a factor, which of the following companies would you buy from?
What would you consider a fair price range for a product/service?
What would prompt you from buying from [company or product] again and again?
9. Detect Pain Points and Provide Solution
It is crucial to understand the nature of the issues based on the responses shared by the passives to formulate your plan of action. You need to detect the problematic areas that make your consumers unhappy and provide them feasible solutions for their problems. For this, you can segregate customer issues into two categories:
Recurring or Common Issues: These are the general issues that mostly happen with multiple customers. Like in the case of hotel feedback, some recurring issues could be like no clean washroom, unavailability of housekeepers, and so on. So, these issues are solved at the business level. In the case of e-commerce, a recurring issue could look like delayed delivery for your customers in California. As such, you can solve this by partnering with a fulfillment center in California.
Personal Issues: These are the issues that happen specifically with individuals based on their subjective opinion and experience. Like in customer support service feedback, some personal cases could be like delays in response, resolution time is high, etc. These issues are solved on an individual basis.
Analyzing and categorizing customer issues in different and relevant categories can be helpful in the following ways:
In identifying recurring and non-recurring issues
Organizing issues and analyzing how often they are happening
Assigning relevant matters to the right teams
Tracking the resolution of issues within your team
- Conveying the solution of relevant issues to the customers
To analyze the issues and resolve them, you can use a customer feedback tool that enables you to close the customer feedback loop on positive ground.
10. Consider Customers who haven't shared any Feedback
Did you know, only 1 out of 26 unhappy customers complain, whereas the rest churn. This statistic indicates that you must not consider the absence of feedback as a sign of satisfaction and you cannot afford to be indifferent about it. For the customers who didn't give feedback, you should try to track their purchase history and relationship with your brand to know if they are the ones who are thinking of switching to another brand.
11. Offer a Personalized Experience
When creating great products and services, providing a personalized experience is of great importance nowadays. It plays a vital role if you want them to keep doing business with you in the long run. For example, in B2B buyers, with the help of personalization, you can deliver the right messages at the right time.
Personalization can play a vital role in delivering a better customer experience with a more intuitive user interface. It’s no hidden secret that consumers are ready to spend more for a better experience.
12. Send Personalized Responses with an action plan
Different customers provide additional feedback. For example, some customers may praise your product or a particular product attribute, and some may praise a specific service that they like the most, some may have issues, and so on. Usually, most businesses keep customers having problems in one loop and send a similar message to all in this scenario. As a result, it may churn your customers from your website.
To avoid this, address all feedback through personalized responses and required actions—follow-up with your customers personally via SMSes, Emails, or Phone calls.
With Zonka Feedback, you can set up Custom Alerts for Respondents and Customers based on various conditions. Some easy ways to customize and personalize your responses include:
Setting up messages based on different filters and survey responses
Including placeholders in the message to personalize it
13. Opt for Up-Selling and Cross-Selling
If you sell different products and services, you need to have a diverse pricing range. Upselling and Cross-Selling are both effective ways. They can assist in increase the amount of money that your customers spend on businesses. Upselling can be related to selling the more expensive version of a specific product or service. Cross-selling is the art of selling the complementary or same type of products or services to your customers.
Some of the great tips for upselling and cross-selling will include grouping different products and services and selling them at a lower price. Another one can be offering a free product upgrade to your premium plan or even showcasing your popular products and services on your website sidebar.
14. Implement a Dunning Management System
It’s a management system that automatically retries a failed payment or expired credit card and sends notifications to customers whenever the charge is declined. It’s essential for any subscription-based business, preventing frustration in customers that can lead to customer churn. The numerous reasons responsible for failed credit card charges are expired, stolen, lost credit card, or even exceeding the credit card limit.
Implementing a DMS will help reduce the customer churn rate and improve customer lifetime value by enabling an automatic recharge option. It would be beneficial to not closing the accounts and charge the card before the account is closed permanently. It's a robust system to ensure that businesses won’t have to deal with angry customer emails or calls.
15. By focusing on all stages of the Customer Journey
To improve the overall customer lifetime value, you should focus on every stage of the customer journey to engage with customers at every touchpoint and ensure a good customer experience at all stages. For instance, at a retail store, only the product quality or pricing isn't essential. However, it is equally important to focus on staff assistance while the shopper is in store, the billing process, and the after-sales service.
By focusing on each stage of the Customer Journey, you can measure and access customer needs and expectations for all touchpoints. As a result, better customer service will help you prevent a bad customer experience or know what to fix when something goes wrong.
16. Leverage 100% Customer Data or Conversation
To build brand trust among customers, you should give them a chance to speak about your brand through customer feedback. Be it written feedback or conversation on phone or email, listen to your customers carefully without being offensive. Then leverage their discussion. How? Note down the points, take your time, analyze data carefully, and use it effectively to change your customers' perceptions.
17. Improve Your Average Order Value (AOV)
Average Order Value or AOV is an ecommerce metric that gives you a clear picture of the average amount of money each customer spends per transaction with your store. To calculate your Average Order Value (AOV) using this simple formula: Total revenue/number of orders = average order value. If you want your customers to increase their spending, then follow the below tips:
Add personalized product recommendations to the site
To lure your customers towards your product, consider adding authentic recommendations about your products on your website. Make sure your product recommendations should be based on the ideal price point for the individual customer. As a result, it helps you to maximize your business revenue and overall growth.
Personalized newsletter campaigns
You can also send personalized newsletter campaigns to your customers in which you can promote your product recommendations.
Trigger product recommendations
You can also trigger product recommendations based on products added to the shopping cart. Immediately send this promotional content once customers added the products to the cart.
Offer heavy discounts
Discounts on products are the game-changer in the business. Create and promote a separate list of products that offer a heavy discount. You can recommend these discount products on the site, or through email, based on the user’s browsing and shopping cart history.
18. Improve Your Purchase Frequency (F)
Purchase Frequency or F refers to the number of times that a customer purchases in a given period. Your customers are willing to spend a lot but are they buying from you very often? Might not. So, to improve your purchase frequency and maximize your profit, follow the below-given tips:
- Single Customer View
A Single Customer View is a way to integrate your marketing data and customer relationship management (CRM) to monitor each customer effectively. Single customer view enables you to target the right customers for the best deals or offers and achieve the desired conversion goals. A single customer view provides you with actionable data like Behavioral patterns like how often they shop at your store or visit your website, Online behavior on social media platforms, contact information and demographic data, and purchases made by them. You can automatically trigger email surveys that arrive at the ideal time for each customer.
- Segment Customers by their Lifecycle Stage
To enhance the purchase value, you need to identify or understand those areas where customers are not finding your product valuable. For this, you can segregate your customers and as per their lifecycle stages. Then evaluate how to stage your customer is churning and interact with them again with some new upgrades to retain them.
19. Improve Your Gross Margin (GM)
Gross Margin is a profit margin calculated by subtracting the Cost of Goods Sold (COGS) from Net Sales Revenue. It is a sales revenue a business retains after incurring the direct costs associated with producing the goods it sells and its services. For example, if a company's recent quarterly gross margin is 35%, that means it retains $0.35 from each dollar of revenue generated.
As we've discussed above, that improves your purchase value, but it doesn’t matter how valuable your purchases are or how frequently they happen until and unless your Gross Margin doesn’t allow for a profit from the sales. So, focus on improving profit margin that directly and indirectly contributes to improving CLV.
20. Improve Churn Rate
If your customers are unhappy, they will stop doing business with you. There can be many reasons why your customers leave and opt for your competitors. It can be because they’re not getting proper customer support, the product is not up to their expectation level, and many more. This is known as Customer Churn.
Churn rate refers to the number of customers that don't return to your company after purchasing due to a bad customer experience. Thus, churn rate is a great indicator to check the performance of your business in the market. Churn Rate can be calculated using simple churn rate formula:
Churn Rate % = Number of Churn Customers ÷ Total Number of Customers ✕ 100
Total Number of Customers = Number of existing customers + Number of acquired new customers - Number of churned customers
21. Use Referral Program Scheme
To improve your customer loyalty, you need to appreciate customers' efforts in sharing positive reviews and recommending your product or services to their friends and family. Using customer loyalty programs like the Referral Program can help you identify new customers who come to you based on the recommendations.
For example: According to Inside Viral Loops, Dropbox employs Referral Program to boost the number of loyal customers. As part of their referral program, they offer free storage to users that refer to new customers. Apart from free storage, when a new customer signs up via referral link, Dropbox has credited their future payments to referrals.
22. Set Expectations with Customers
If companies solve customer issues during the first engagement, they can reduce 67% of Customer Churn.
You must send a timeline for reaching out to customers. Set the right expectations with the customers, whether it is a query to answer, a request for a particular service, an issue to resolve, or a complaint to take action on; you should always give customers a timeline to get their work done. When you immediately respond to customers' queries or issues, this will assure them that their work is being done.
Moreover, this will calm them down and motivate them not just to churn away but wait with patience to get their issue resolved.
23. Use CLV Data Effectively
The significance of the CLV data is zero until and unless it is not converted into a proactive and customer-driven approach. If you want to levitate the conversion rate of your business, get the most out of CLV data. You can use CLV data:
- For doing SWOT analyses
CLV data provides you with a clear picture of the SWOT (Strength, Weaknesses, Threats, and Opportunities) associated with your business. Moreover, this helps you to take immediate action and improve your business operations.
For acquiring higher value customers
Doing CLV analysis on your customers allows you to predict the amount to spend on customer acquisition. Along with this, you can also get an idea about the acquisition channels that enable you to produce the highest value customers.
Valuing your customers will result in increased revenue. Therefore, CLV is vital for business growth and long-term success. It’s not an easy process to recognize your most valuable customers, but it’s worth it. When measuring customer lifetime value, you need to ensure that you’re investing sufficient time interacting with your customers.
It would be best to show them how much they mean to your business and offer them precisely what they need by providing excellent support and an incredibly personalized experience. In addition, knowing the CLV will aid in forming better decisions on how to sell your products and services.