Customer Success May 18, 2016 6 min read by Alex

6 Ways to Increase Your Customer Lifetime Value (CLV)

6 Ways to Increase Your Customer Lifetime Value (CLV)

There are two ways to grow your business. The first is to acquire new customers. The second is to focus on retaining your existing customers and increase the Customer Lifetime Value. Data shows that the second is a far more effective strategy for producing a steady, predictable increase in revenue.

Despite this, many businesses spend far more time and money on acquiring customers than on retaining existing ones. Econsultancy’s Cross-Channel Marketing Report 2015 shows that 44% of companies are more focused on customer acquisition than retention.

Just 16% of companies focused more on retention than acquisition, putting the old wisdom that it’s cheaper to keep a customer than to find a new one squarely in the minority.

Is your company too focused on acquiring new customers? If you care more about winning over new customers than preventing the loss of existing ones, your company might be too focused on acquisition (and not focused enough on retention).

The longer you can keep a customer, the greater their customer lifetime value (CLV) becomes.

What is Customer Lifetime Value?
What is Customer Lifetime Value?

A high CLV means each customer you gain generates more revenue for your company. Since each customer becomes more valuable, it means your company can afford to spend more to acquire each new customer.

In a way, increasing your focus on customer retention and CLV actually makes it easier for your company to acquire new customers.

Increasing your CLV can be as simple as extending your billing cycle, or as tough as changing your product’s natural lifecycle. Below, we’ve listed six effective ways to increase your average CLV and generate more revenue from your company’s existing customers.

1. Encourage customers to switch to an annual billing cycle

If you sell a recurring product or service (for example, web hosting or a SaaS product), the total amount of time that customers continue paying your product is one of the most important figures for determining your CLV.

Customers that stick with your product drive predictable revenue, while customers that only pay for your product for a month or two generate very little. In some cases, customers that only use your product for a month or two can produce negative revenue, depending on your CPA.

If your customers stay for an average of fewer than 10-12 months, one easy way to improve your CLV is to encourage users to switch to an annual billing cycle. This helps to reduce churn by committing your customers to a year of usage, producing a higher average CLV, and more time to prove the value of your product.

The money that customers pre-paid could be reinvested into your company and product. Look at it as if a customer is investing in the company’s growth by lending money at zero interest.

Another advantage of switching to annual billing lifecycle is that it makes it easy to forecast and predict revenue. In the long run, it will help you with making decisions concerning your revenue and growth.

Very few of your customers will extend their billing cycle unless you give them an incentive to make the switch. One great way to encourage customers to switch to annual payments is to offer a significant discount (typically in the range of 10-20% off) or to provide 1-2 months or additional usage for free.

Advantages of annual billing cycle
Advantages of an annual billing cycle

2. Take advantage of your product’s natural life cycle

Does your product have a life cycle? Products that people use over a period of time like health supplements and beauty products have a natural lifecycle — a period of use before they need to be replaced.

One simple way to increase your average CLV is to take advantage of this natural life cycle to encourage repeat purchases.

Since not all products are suitable for recurring billing (very few people pay for shampoo via a monthly fee, even though they might use a bottle a month) you can encourage your customers to make repeat purchases through remarketing.

If you know that it takes an average of one month for customers to use your product, send out a monthly replenishment email that promotes the same product. Since most of your customers will be near the end of the product’s lifecycle, a large number will repurchase it.

You can even combine this technique with our above tactic of switching customers onto annual billing cycles. After customers use your product once, send them a replenishment email offering a three or six-pack of the same product, with a discount for purchasing in greater volume.

3. Send value-packed emails that keep customers engaged

Email marketing is one of the best ways to retain customers, but many businesses go about it in totally the wrong way. Instead of sending value-packed emails, they send repetitive sales emails that promote new products without offering any value.

The best type of emails to send to your customers are messages that remind them how you’ve helped them:

  • If you provide accountancy services, send a weekly or monthly email telling clients how much you’ve helped them save that month
  • If you provide personal training services, send a monthly email to clients with their total weight loss or strength training progress for the month
  • If you sell an environmentally friendly product, email your customers to tell them how much less carbon dioxide they’ve produced than by using a competing product

Every product or service delivers value. The key to effective email marketing is to find that value and deliver it to your customers in a way that shows you’ve helped them. An email that explains the value you offer goes a lot further, from a CLV perspective than another promotional email.

4. Give personal customer service via phone and email

According to data, only 14 percent of customers leave a company because they feel dissatisfied with its product or service. A far greater 68 percent leave because they feel let down by the way they were treated.

Service is the most important factor for your company in retaining customers. If your service is below average, customers will defect to competitors even if your product is above average. As such, it’s important to get customer service right.

44% of customers prefer email to other customer service channels, making it important that you do email support right. Making your email support as personal as possible helps to give customers the best possible experience and this is considered a good way to make your customers happier.

39% of customers prefer phone support to email, making it important that you offer great phone support. Leave the complicated phone menu behind and give customers a human voice as soon as they reach you, as these are the most common phone support complaint.

5. Upsell and cross-sell

If you sell several complementary products, up-selling is one of the easiest ways to raise your average CLV. Upselling and cross-selling (which is similar, but not the same) are two simple, effective ways to increase the amount each of your customers spends with your business.

Difference between upselling and cross-selling
The difference between upselling and cross-selling

Upselling is the art of selling a more expensive version of a specific product or service. If you deliver a service, upselling could mean increasing the scope of that service. If you offer SaaS software, it could be helping a customer upgrade from a basic plan to a more expensive one.

Cross-selling, on the other hand, is the art of selling a similar, complementary product or service to your customers. A customer buying bath towels probably needs hand towels too, so they’re a natural choice for you to cross-sell and increase the value of the transaction.

Here are some great tips for cross-selling and upselling to your current clients:

Offer bundle products: Group different items together and sell them at a lower price than what they would have sold for separately. A good example of this strategy would be burger combos, you buy a burger and can additionally buy french fries and soda for a cheaper price.

It also works well with items that require accessories. For instance, if you just purchased a phone, you might be interested in a phone case or earplugs. It helps you increase the value of customer purchase, by offering complementary products in a combo.

Use a sidebar widget with popular choices:  You can have a small list of popular products on your sidebar. This allows your customers to see the most popular products when they are browsing on your website.

Add complementary products at checkout: Products you offer as cross-sells should address the needs of your customer. Ideally they should complement the primary product in the shopping cart.

Free shipping with minimum spend: The word “free” by itself excites many buyers, but when you combine it with free shipping with a minimum order size condition, it makes it even sweeter. Customers are more likely to spend more money, that they would have spent on shipping, to buy something else.

Keep recommendations limited: Don’t overwhelm potential customers with too many choices. Otherwise, you run the risk of customers abandoning the card. When faced with a choice, it’s easier for customers to decide between three items than ten.

Amazon has perfected upselling and cross-selling and uses both practices to drive a huge amount of additional revenue every month. Used properly, upselling and cross-selling can both help you generate an extra 10% or more revenue per month from your existing customers.

6. Ask your customers for detailed, actionable feedback

Happy customers are loyal customers. Growing your business without learning about what your customers think of you is extremely challenging. Growing with detailed, actionable feedback, on the other hand, is a far easier process.

Understanding your customers lets you prioritize the aspects of your business that fuel customer satisfaction and revenue growth, all while scaling down ineffective tactics. It also gives real data on how likely your existing customers are to recommend your product or service to their friends.

Retently uses Net Promoter Score to assess customer happiness, giving you a single metric to focus on improving. The higher your Net Promoter Score, the more likely existing customers are to recommend your brand to their friends, colleagues, co-workers, and acquaintances.

A high NPS helps you increase your CLV since happy customers are far more likely to stay with your business than unhappy ones. Focusing on increasing your NPS is a great way to keep your churn rate low while you expand your customer or client base.

Close customer feedback loop using NPS
Close customer feedback loop using NPS

Learn more about your customers and increase Customer Lifetime Value

Do you want to improve your customer lifestyle value? Retently NPS can help you retain more customers and grow your business. With a simple one question survey, you can learn exactly what your existing users, clients, and customers think, giving you the actionable data you need to fuel long-term growth. Start a free trial today!


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