Customer Lifetime Value: How important is it?
Do you know how much it costs to find a new customer when compared with the costs of keeping an existing customer? The cost of bringing aboard new customers can vary, but you will find that it is always going to be more expensive than it is to nurture the customers you already have. Not only that, but when you improve your customer satisfaction, you can also increase the customer lifetime value.
What is Customer Lifetime Value?
Customer lifetime value sometimes called the CLV or LTV for lifetime value, is easy to understand. It is the overall value that the customer brings to your company during the time they are buying from you or using your services. To get an idea of the value, you will want to consider the following:
- Annual profit contribution per customer
- Average number of years that they remain a customer
- Less the initial cost of customer acquisition
This is the simplest and most basic means of determining the customer lifetime value. If you are making $100 each time the customer orders, and they order 10x a year, you will have $1,000 profit from the customer each year. If they will be retained for five years, and the amount they spend is the same, the customer lifetime value would be $5,000. The longer you keep your customers, and the more you get them to spend, the greater the value, naturally.
Although this is a simple concept to understand, and it is easy to see how important it is, many companies are still not paying as much attention to it as they should. Instead, they are focused on bringing in new customers. As mentioned, the cost is higher to bring in new customers than it is to keep current customers.
What does Customer Lifetime Value tell you?
When you know the lifetime value of the customer, you will have a good idea of how much money that customer will be bringing into your company over the years that they are with you. This number is more important than you might realize. It doesn’t only show you how much profit the customer is helping you make, but it gives you an indicator of how much you should spend on retaining that customer.
Keep in mind that great customer service is essential for keeping customers happy, but providing special incentives can help as well. For example, depending on the amount of money that a customer is spending, you might provide them with a discount on the next major purchase, or send them a gift for their loyalty. I have personally received a $10 “gift” to spend during my birthday month from a company. This drives value, and my appreciation of them as a business all at the same time!
Naturally, this will vary based on the types of customers you have and their overall value to your company. Regardless, you will find that spending on them and nurturing them will help to build their loyalty. They will be more apt to want to do business with you in the future.
Having customers who have been with your company for a while will also provide you with some valuable insight into how they buy, when they buy, etc. You can better anticipate their needs. Additionally, this data will be vital to you when you have other customers who come aboard. You can use the data to find similar customers and start to upsell to them in the same way that you did your customers with a greater customer lifetime value. This can help those newer customers to increase their CLV.
When you work toward improving the customer lifetime value for the customers you have, it will help to improve your business’s bottom line. Now, let’s take a closer look at how much it can cost to get a new customer in a few different fields.
What’s the cost of getting a new customer?
Of course, there is no single answer to this question. The amount of money your company could spend to obtain a new customer will vary based on a few factors, including the industry you are in and what you are offering. According to information from StartUpTalky, it’s important to get at least three times the customer lifetime value vs. the cost to acquire the customer.
Keeping your costs to acquire customers as low as possible and increasing the lifetime customer value are goals for every business. Even though different industries might have different acquisition costs, it will usually be more expensive to find and attract new customers than it will to nurture your current customers. According to Signalmind, “80% of your future profits will most likely come from your existing customers.”
Now, think about how much easier and cheaper it would be to improve your customer satisfaction and engagement to keep the customers you already have. This increases their customer lifetime value, meaning they are spending more money with you, rather than your competitor, AND you are spending less since you don’t have to actively seek as many new clients or customers.
Take some time to investigate the numbers in your own industry. Learn just how much it is costing you to bring in new prospects and how difficult it can be to turn them into customers.
Of course, this isn’t to say that you shouldn’t seek out new customers and clients. But that you need to make sure that you are spending plenty of time and effort on keeping the customers that you already have. When they are happy, it’s more likely that they will be customers for longer and that they will spend more, plus they will be likely to tell others about their good experiences.
In reality, if your customers are spending more with you than the cost of winning them in the first place, it wouldn’t make much sense to stay in business.
Tips for increasing the amount your customer spends
If you want to increase customer lifetime value, you need to find ways to increase the amount of money that your customers are spending over the course of a year, and their lifetime with your business. There are several things that you can do that will help make this possible.
Driving Loyalty and Satisfaction
If you want to have your customers spend more with your company, they need to trust your business and the products/services you offer. They need to be loyal to your business, and the only way they will be loyal is if they are satisfied with what you are providing them right now. This is true when it comes to your products, the way you communicate with them, and your customer service. We will discuss more on customer service in the section below. Some of the best ways to increase customer loyalty includes:
- Making customer service a priority across platforms
- Rewarding customers for their loyalty
- Showing customer appreciation
- Asking for feedback, listen to it, and then make the changes that make sense
- Making things as convenient as possible
Becoming more than just a brand, becoming a community, can help to increase the loyalty that people have toward your company. This is true for those customers who have already been buying, as well as those who are considering becoming customers. That’s right—the things you do to increase your customer lifetime value can also help you attract new customers to your business – win/win!
Increase Frequency of Purchase
Another way to increase customer lifetime value is to increase the frequency of purchases. If a customer is buying from you twice a year, could you find a way to increase this to three or four times per year?
Of course, depending on the nature of your business, this will vary, but it’s often possible to get them to buy more often. This could be by informing customers who interact with the contact center aware of new offers/products that could benefit their business objectives. You could send the customers reminders, or you could offer special discounts for their next purchase. When there is a limited time offer, it can often make people spend even though they might not have been thinking about buying. They want to avoid missing out on a deal. You could also email them whenever there is a new product available.
Think about Amazon Prime Subscribe and Save. How much loyalty and repeat purchase are they driving just by making it easy for the consumer? Are the prices competitive? Usually. Competitive enough anyway. Remember, customers pay for convenience. Maybe there is a special program that makes sense for your business as well. In addition, consider the content that you have on your website, in your newsletters, or in your emails. Providing content on how to use new products, breakdowns of products or services, etc. can help to get people interested in products they might not otherwise purchase.
Increase Longevity with Subscription Services
You can also find ways that you can keep your customers for longer and get them to spend more at once. However, this method does not increase the frequency of purchase. You will be getting more per purchase, though. The subscription model is a good example of this.
Let’s say you have a service that costs $19.99 per month. If the customer subscribes every month, they will be spending $239.88 per year. If they stick with the monthly plan and are a member for a year, then that’s great. However, sometimes, they might decide that they no longer want to use the service after six months. This means that you would only be getting $119.94 from that customer.
If you offer discounted plans for longer periods of service, you can retain the customers for longer, and you can get them to spend more at once. Instead of spending $19.99 for a month’s service, maybe you offer a 20% discount for a year’s service instead. You get more money up front and the customer gets a good deal. They are happy and you are happy. If you do a good job of nurturing this customer and providing them with the service they need during that year, it’s likely that they will subscribe again, and that they may be interested in other products and services you are offering.
Follow Up and Eliminate Pain Points
Always, always, always follow up with your customers. This starts with ensuring from the start of their journey and throughout to know more about what they are thinking during their interactions with your company. Not only that, but you could find that it’s beneficial to create a that you can use, as it will help you to better identify any challenges that the customers might have, so you can address them.
For example, is it too hard to purchase through your website? Are customers having a hard time finding the information they need about your products and services? If they can’t find the information they need, they likely won’t buy through your company. They will look elsewhere. Some of the other common difficulties customers face involve:
- Financial issues
- Convenience problems
- Tracking and delivery dilemmas
- Customer service complexity
- Multichannel shopping difficulties
Take the time to learn more about the pain points that your customers are facing. Determine what they are and find ways to eliminate them. The best thing to do is to be proactive. Reach out to see what issues they might be having, ensure they know how to use your product to the fullest, or gauge their satisfaction levels. If there are issues, make it right. This will increase customer loyalty, and it can help to boost your CLV.
Great customer service keeps customers happy and buying
What is it about your business that makes the customers keep coming back and buying again? If your business is like most, it’s not just one thing that helps to keep your customers happy. Most likely, it is a combination of things. It is the quality of the products and services you offer, the features, the price, etc. However, it is also the level of customer service that the customers experience with your company.
Think about interactions that you have had with companies in the past. If you were not treated well by the company, regardless of whether the product was good or not, how likely were you to go back to them? No need to quote stats here, think about your own experience. How often do you do return business if you had a bad experience? Did you go somewhere else? Did you tell your “friends” – either on social media or word of mouth?
Companies strive to differentiate themselves on the customer service experience they provide to retain their current customers and gain new ones. As customer service technology evolves through artificial intelligence, social media, and omnichannel services, companies must pivot to meet the customers’ expectations. In our 2020 Customer Experience Transformation Benchmark we found that, “84% of consumers are more willing to do business with companies that offer self-service options, but only 61% say companies offer easy, convenient self-service.”
As you can see, having great customer service helps keep customers from leaving and from taking actions that could harm your company. Let’s look at some simple tips that can help to improve customer service.
Tips for building the best customer service
One of the most important things to remember is that the customer service department needs to be using the right tools. The days of only having a call center with no other means of contact are gone. You need to have a contact center. One that can work with multiple channels while keeping the customer information available through a single interface. This will ensure that all the information is readily available to the agents no matter how the customers contact your company.
Additionally, investing in AI, bots, and similar services can be a huge benefit. This can help span from in route calls and contacts, providing a fast way of helping customers help themselves, quickly, maybe even without needing to interact with someone at the company. And nowadays many customers prefer this, so it should be an available option. Customers have high expectations for seamless omnichannel experiences when moving from one communication method to another. In fact, 96% of customers expect companies to make it easy without the need to repeat information. And 83% of customers say that if they use a chatbot, they expect to switch to chat, text, or phone in the same interaction. Read more on the major findings we found in our 2020 CX Transformation Benchmark.
Information that is provided through customer service should always be as clear as possible. If the customers are confused, they should be able to ask questions to the agents until they get the answers that they need. Providing personalized touches to customer care can help to keep the customers happy and satisfied, even if it does take a little longer to get the answers they need. Companies have a long way to go to provide the seamless omnichannel experience that customer expect because 64% of customers have to repeat information when switching from self-service to a live agent.
The team should always listen to customer complaints and do their best to respond calmly. If a customer is upset on the phone, through chat, or in an email, do not respond with the same negative tone. Keep things
Also, keep the response times as low as possible. People prefer not to wait a long time to get responses to their questions and concerns. They want to be helped as soon as possible. Treating the customers well and providing timely answers will help to keep them happy and will help you to retain them over the years.
Choose NICE CXone
What makes NICE CXone the perfect choice for a contact center, and how does this help with customer lifetime value? CXone is a robust platform that can provide you with a substantial number of advantages when compared with the competition. Here is a partial list of features found in the platform.
- CXone omnichannel routing
- Process automation
- Analytics and personalization
- Contact center recording and compliance
- Real-time interaction guidance for agents
Omnichannel routing is more important than many might realize. Today, two-thirds (68%) of consumers say companies are doing a poor job allowing customers to switch seamlessly between methods of communication. Customers have their preferred ways of getting in touch with a company when they have questions or complaints. Some might prefer calling, others might prefer chatting through the website, and some like communicating through social media. With omnichannel routing, the agent can connect with all these channels through a single interface. It’s easier for them, and it makes customers happier.
These are just some of the benefits available with NICE CXone. Get in touch with us, so we can introduce CXone’s features. See how you can benefit from incorporating them into your business.