Understanding and Maximizing Customer Lifetime Value
There is a lot of talk about how you can use Big Data, Social CRM, mobile apps and all kinds of other wonderful elements of the digital age to reach pretty much any prospect or customer at any time. What too few people ask, however, is whether you should. What organizations today need to look at is the projected customer lifetime value (CLV) of any prospect or even existing client they plan to invest in recruiting or retaining.
Not all customers have the same potential for profitability, so companies need to determine where to focus their efforts. Understanding and analyzing CLV is central to deciding whether targeting and spending marketing and sales budget on a given customer is really good for the business.
The critical point about CLV is that it looks at profit margin and not revenues. Whilst a customer might offer a decent flow of revenues, the spending needed to keep that customer sweet may make continuing investment in the relationship strategically unsound because, in the end, the margins are minimal. On the other hand, CLV analysis might reveal that a customer whose revenues are middling, but whose required investment turns out to be negligible, is a real profit-churner, highlighting the need to step up efforts to retain that client and even attract prospects with a similar profile.
CLV also enables you to know at which point customers become profitable, which is key to successful marketing and retention programmes, sales targeting, financial forecasts and other strategic concerns. Getting a handle on CLV helps identify the additional investment required to drive marketing campaigns, retain customers, support sales account management and optimize customer service.
To fully assess CLV for customers and then segment them, it is important to employ tools that help you identify and track different types of customers. Using a Customer Relationship Management (CRM) solution can be essential in ensuring that you organize customer information, metrics and other indicators, so that you can effectively profile and segment customers and assess CLV.
There are specific steps you can take to retain customers fitting the right profiles:
- Complete a customer lifetime analysis on all existing customers – A simple calculation model will identify your current key customers, your potential key customers, your general population and customers who will never be profitable to keep
- Segment your data and create a retention plan – With the CLV analysis completed, segment your data according to customer worth. It is important to create a separate retention strategy for each segment, according to the projected value. For example, key accounts and potential key accounts may receive a free customer magazine and quarterly sales visits to ensure they are happy, while less profitable customers would receive an online version of the magazine and phone follow-up – which cuts costs in accordance with the return
- Send the right communications – A relationship can be tainted from the very beginning if you don’t offer communications to customers that are relevant and anticipated. Use marketing automation software to trigger communications based on customer behavior – this is considered one of the most impactful ways to grow a fruitful relationship with customers and is completely automatable
- Streamline processes – If your employees are manually undertaking tasks like call logging or saving emails, then productivity is limited. Simply implement the right CRM software, which will happily record and track such data automatically and subscribe customers to specific campaigns with a few clicks. Being efficient will impress your customers and free up time for more qualitative interactions that help build a stronger relationship
- Get varied with media – Today there is a consumer expectation that companies should interact across a range of media, especially digital channels. Social media is becoming increasingly important, with every smart company having some sort of customer-specific presence on social media channels. Proactively handling customer service via a social media management tool can help you to resolve issues more quickly – you are able to get to the information you need to see faster
- Instill loyalty – Successful customer retention begins from the first point of contact and continues throughout the relationship. Continually exceeding customer expectations will help gain loyal advocates and in the digital world, a happy customer can spread the word to hundreds if not thousands and in certain magical instances, millions of prospects. Personalized messages that are right on target, addressing needs and reflecting preferences, help companies build strong bonds with customers and help nurture new relationships
- Show you care – Taking customers’ thoughts and feedback on product ideas into consideration can go a long way to making them happier, as they feel part of the brand’s journey. Setting up a Facebook or LinkedIn Group for customers is simple and easy to manage and can be a great source of upsell and cross-sell opportunities
- Empower service reps – By centralizing your entire service team’s knowledge into one accessible hub of past product issues and allowing reps to customize their own filterable history feeds, you can rapidly increase the speed at which customer issues resolved. Using the right CRM, you can set up new cases for on-the-move reps within their area, to increase their productivity and escalate support issues to the right person wherever they are.
Companies that implement these steps do more than just provide a good service: they are creating an overall positive customer experience. Although ‘customer service’ and ‘customer experience’ may seem to be the same thing, they are not. While customer service is the delivery of service to customers before, during and after a purchase, customer experience is the sum of all involvement a customer has had over the course of the relationship, taking in all interactions with your brand.
Providing a positive, hopefully excellent customer experience will help a company to increase CLV. Keep in mind that CLV need not be static. Improving the customer experience helps a business expand its customer relationships, whether more purchasing or cross-selling and upselling and thus improve CLV. This effort should be focused in the most desirable segments. Having an effectively configured CRM platform can be crucial to delivering this CLV, enhancing customer experience, which in turn converts customers into loyal brand advocates and builds long-term overall profit.
For more details on CLV, retention and customer experience, and download our whitepaper, Maximizing lifetime value by optimizing customer experience