How Customer Lifetime Value (CLV) Can Guide Your Organization

How the Customer Lifetime Value (CLV) Can Guide Your Organization

Many businesses will calculate their customer’s lifetime value (CLV) to understand how much to spend to acquire new customers via ads, promotions and campaigns.

But a daily consideration of a customer’s lifetime value can be a stable and useful guide for an entire organization, not just marketing.

When departments like support, sales and development consider the impact of customer lifetime value, their decisions will more positively impact business goals as a whole. Using CLV as a guiding principle company wide also helps create better interdepartmental communication, and oftentimes a better customer experience.

How Marketing Uses CLV

Calculating a customer’s lifetime value is a common equation, and one that should be relatively easy for marketers. It simply requires an understanding your how much customers typically spend with your company over time.

Knowing where your average customer falls in lifetime value will be the basis for your marketing budget. Let’s say your average customer keeps a subscription to your product for 6 months, and the average monthly payment is $45.

That would put your average CLV at $270. Now you can project your acquisition spending, for things like PPC and affiliate marketing, based on that CLV.

Often the cost of acquiring a new customer through an affiliate service or Google Adwords will be more expensive than the initial value of the customer. But an understanding of their lifetime value will give you a more accurate view of what you can realistically spend on acquisition and still get a solid ROI.

It’s also important to consider ways to drive the average CLV upward.

Depending on how your organization is structured, your marketing or customer success team should be strategizing how to increase the lifetime value of the entire customer base.

If your customers only utilize your service for six months on average, then you should be thinking about how to get that number to seven months, and then eight. Collecting customer feedback and product usage data can be useful in this endeavor, and you should be sure to share your findings with your product and development teams (more on their role to below).

So if you want your organization to grow, don’t just think about CLV when it’s time to set the marketing budget. Activities from all departments should be focused on increasing your average CLV as much as possible.

How CLV Affects Customer Service Team

CLV impacts customer service very differently for different sized organizations.

For example, for a small business needs to customer lifetime value in every single customer interaction, and its calculation goes beyond simple dollars and cents.

Small businesses and startups need to think about a customer’s vocality, their social media reach, their general mood and attitude, and their customer satisfaction scores (which you should start collecting now if you’re not already).

These companies should be sure to make exceptions to their rules about pricing and/or features, and to go above and beyond within reason to help improve their CLV for each and every customer.

If a customer has a poor experience, then consider comping them services and features beyond the norm if they are close to the average CLV. The end result could be that you create a very positive experience and drive the average CLV up for all customers.

For medium and large businesses, the relationships between CLV and customer service is a little more black and white.

For these organizations, efficiency is key.

If your customer service reps are carefully considering every customer’s lifetime value, then their rate of reply when assisting will drop and this actually reduces CLV. To counteract this tendency, tailored automations and unpublished service policies can help guide representatives’ decision making and keep customers satisfied while keeping costs manageable.

Additionally, giving your customer service representatives and their systems some flex in how they can service customers of varying CLV can have a very positive effect on your overall brand perception.

The key is to keep the cost of that flex under control so that the cost of maintaining customers doesn’t exceed their CLV.

CLV and Onboarding/Sales

Predictive customer lifetime value plays a large role in determining strategies for sales and/or onboarding team interactions with customers.

You’ll often see SaaS products offer different tiered plans, allowing a customer to self select their level of service. When customers select how much they want to pay, their CLV becomes apparent very quickly. This helps sales and onboarding teams interact wit them appropriately based on their value to the organization.

However, if you build in flex policies to give your team a way to go above and beyond customer expectations at each level of service you can drive up the average CLV of many customers.

Empowering your sales and onboarding teams a flexible range of tools to regularly exceed expectations will win you customers and turn customers into evangelists.

You can keep the cost “wowing” customers under control by calculating the cost of the “wow effort” against the predicted customer lifetime value. You don’t want representatives over servicing new customers to the point that the ROI on their time is less than CLV.

Using CLV to Guide Development

The best development managers consider ROI and CLV when collaborating and planning product development and software updates.

What features would need to be added to your service or product to increase the lifetime value of the product? We make it a point to survey lost leads and customers on what we could have done to win or keep their business.

Some useful ways to do this are:

  • Ask prospects, who didn’t convert to your service what they were looking for and what you could have done to win their business.
  • Ask your lost customers what the software or service could have done to keep them.
  • Ask your current customers what current features and services are most valuable to them, and what new ones might entice them stay longer.

A CLV-driven development team collects and reviews this type of data to see which new features, upgrades or service fixes will help keep customers engaged and increase their CLV.

Customer Lifetime Value: A powerful point of reference

The customer lifetime value can help define action across your entire company. Often this value is implicitly communicated, but calculating it precisely can help all departments work toward a common goal.

Management can then adopt a flexible strategy that explicitly communicates how the organization interacts with customers at varying CLVs while working to increase the average CLV over time.

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About the Author:

Joshua Robitaille

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