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How to increase Customer Lifetime Value

Updated: Sep 26, 2023

It’s the obvious follow-on from any analysis of Customer Lifetime Value (CLV or LTV) – ‘that’s great, but how can we increase LTV’?

It’s actually a great question, as it will force you to think about growth from a customer perspective – and in my experience has led to some of the highest quality discussions around the board table. It is a key part of establishing your own marketing flywheel.

There are of course many different ways to increase Customer Lifetime Value, but I wanted to offer my top five. These are inevitably quite generic, but think of these as conversation starters for you to adapt to your own business. As with most choices about strategic growth, you won’t be able to tackle many of them at once, so be sure to prioritise based on potential impact on LTV and expected effort.

Five ways to increase Customer Lifetime Value

1. Change the customer mix: if you’ve analysed LTV for different segments of your customer base, you will have some insights about which types of customers are worth more to your business. This segmentation might be based on ‘attributes’ such as age, location or industry vertical; or ‘behaviours’ such as what the customer purchased first or which marketing channel they came from. You can then start to adapt your go-to-market efforts to attract more of the higher LTV efforts – by changing your marketing mix, messaging or perhaps offering discounts.

For example, I’ve worked with a travel business which saw that customers who booked larger properties for their first booking had a higher LTV, as they would typically continue to book larger properties on subsequent trips. They started to spend more on search terms which attracted extended family/group bookings as a result of this insight.

2. Develop up-sell and cross-sell opportunities: consider how to develop additional revenue opportunities with your customers – could be ancillary add-ons like premium delivery and insurance/cancellation products in the B2C world, or enhanced service levels and additional features in SaaS models. Often these are also higher margin than the core product or service offering so have disproportionate impact on Customer Lifetime Value.

3. Pricing optimisation: as the saying goes; ‘some of your customers would have paid more, the challenge is working out which ones’. Although it is getting more attention in the current macro-economic environment, in my experience pricing is one of the most under-used value creation levers. When it comes to increasing Customer Lifetime Value, pricing analysis can be used to design different packages for customer use cases, or to incentivise repeat purchasing behaviour through discounting. You should also consider the role of regular price increases in your business.

It is also worth examining the highest value customers that your LTV analysis identifies, as this can often lead to opportunities for different proposition/pricing models – for example business customers using a B2C platform.

4. Reduce cost to serve: the process of allocating both direct costs and a fair share of variable costs to unique customers as part of LTV analysis can offer valuable insights about the efficiency of how you deliver your proposition. For example, I’ve worked with a SaaS business that saw a disproportionate number of support cases (and resultant costs) from one part of their product suite. By changing how customers are onboarded, and improving the quality of support documentation, they were able to reduce support calls and increase LTV.

5. Improve customer retention or repeat purchasing behaviour: whilst some of the ideas above might also improve customer satisfaction and retention, I’ve always found it incredibly helpful to focus directly on the reasons why customers churn or fail to repeat. This exercise requires a lot of primary research with customers, analysing reviews and listening back to support calls. One shortcut is that in my experience, Net Promoter Score is (unsurprisingly) well correlated with propensity to repeat.

For example in a travel business I worked with, customers rating their likelihood to recommend a business as 9 or 10 were 3x as likely to repeat book than those rating 6 or below. This insight provided both motivation to focus on the drivers of dissatisfaction but also allowed the Management team to quantify the impact of customer service improvements on Customer Lifetime Value.

And finally…

Don’t forget that increasing Customer Lifetime Value might not be the best place to spend your time and money right now. The most obvious growth lever to pull next might just be more customers through better conversion. There can also be negative impacts on conversion of changes to LTV, for example imagine what would happen if you doubled prices.

If you’d like to discuss how you can increase Customer Lifetime Value in your business, please Contact Me.

All views expressed in this post are the author's own and should not be relied upon for any reason. Clearly.



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