9 detailed strategies SaaS companies use to increase Customer Lifetime Value
Research shows that the top 10% of customers spend 3x more per order than the regular customer base, and the top 1% spend 5x more per order. However, in my experience, most SaaS businesses still focus on acquiring as many new customers as possible.
Although constantly growing your customer base is a good thing, my 18 years of experience in the sales business have taught me that customer retention and brand loyalty should be your number one priority. That’s because increasing your Customer Lifetime Value (CLV) is the only sustainable way to grow your business.
In this article, I’ll share with you 10 Customer Success and Sales strategies that will help you increase your customers’ lifetime value. But first, let’s see what Customer Lifetime Value is.
What is Customer Lifetime Value (CLV) and how to calculate it
Customer lifetime value, also known as CLV, CLTV, or LCV, is a metric that measures the revenue you can expect from a single customer account. Because of this, businesses use it to identify the most valuable customer segments.
Correlated with the customer acquisition cost (CAC), the CLV enables you to measure how long it would take to cover the investment required to earn a new customer (the sales and marketing costs, for example).
The customer success and customer support teams have a direct impact on this metric as they play key roles in solving problems and offering recommendations. Ultimately, it’s their response that will determine whether your customers remain loyal or churn.
To calculate your customers’ lifetime value, you need to first determine the average purchase value (APV), average purchase frequency rate (APFR), average customer’s value (CV), and average customer’s lifespan (ACL). Here’s how to calculate each one of them:
APV = total revenue / number of orders
APFR = number of purchases / number of customers
Use these two metrics to determine your average customer’s value (CV).
CV = APV / APFR
Now, you need to determine your average customer’s lifespan (ACL).
ACL = sum of customer lifespans / number of customers
Finally, you calculate your CLV:
CLV = CV / ACL.
Why you should know your customers’ lifetime value
Here’s something I’ve witnessed time and time again: out-of-balance business models are the number one reason businesses fail.
What does this mean? It implies that most businesses spend more acquiring a customer than that customer spends with them. Therefore, they’re not profitable.
To avoid this, you need to determine your customer acquisition cost and your customer lifetime value and see how they compare over time.
If you’re just starting, you might spend more on customer acquisition, and that’s ok. But as time passes, you need to loyalize your customer base, upsell and cross-sell, and make sure you systematically increase your customers’ lifetime value. Here are 10 ways you can do just that.
How to increase your customer’s lifetime value
1. Implement a dunning strategy
SaaS businesses store customers’ payment information at signup and then use it for recurrent payments. But over time, cards can expire, get stolen or misplaced, get maxed out, etc., which leads to involuntary churn.
Since it’s involuntary, your customers might not even be aware they’ve churned, which is why having a dunning strategy in place can help you prevent a significant percent of your churn.
A dunning management system is a solution that automatically retries a failed payment or expired credit card and sends a drip of renewal notifications to customers whenever a charge to their credit card is declined.
Don’t freeze your customers’ accounts right away in case of a failed payment. This leads to bad customer experience, and they might decide to leave you because of that. Instead, allow them a few days to replace their card and try the payment again.
2. Give your users trial access to a feature that’s not included in their subscription
Most of us try out products and services before we commit to buying them, especially when they come with a hefty price. Even if your customers don’t ask for a trail, you can still proactively reach out and give it to them.
However, do your research first. Give them access to something they’d actually benefit from and tell them why you think they should use it. Your customers will definitely appreciate the time and effort you’ve put into researching their business, and they’ll be more inclined to pay for that feature once the trial period ends.
3. Thank your longtime customers with free upgrades
Loyal customers are not easy to earn, so you should thank longtime clients for sticking with you.
If you have a premium service, give free lifetime access to it to customers who actively and openly engage with your product regularly. The cost of doing this is nothing compared to the ROI you’ll get when they tell all their friends, family, and followers about it.
4. Use Customer Success Software
Customer success software helps you prevent churn and increase expansion by analyzing customer behavior and creating health scores based on that. Health scores also help you prioritize reaching out as you know which customers are in danger of churning.
As it often integrates with CRM software, social media management tools, and help desk software, customer success software can also help your reps save a lot of time.
5. Give a shout out to the users who have helped you improve your product
Constructive customer feedback is extremely valuable as it helps improve your product. If your latest feature was inspired or asked for by a customer, credit them for it.
Letting everyone know will not only help you build stronger relationships with your customers, but it will also encourage others to speak out because they know their voices are heard.
6. Make Customer Support a priority
As I’ve previously mentioned, customer support has a direct impact on customer loyalty. So you should always strive to offer the best experience.
What great experience is can differ from business to business, but a few things you should keep in mind are:
- Omnichannel support (98% of customers switch between devices on a regular basis, and 66% of customers use at least three different communication channels to contact support);
- Live chat support;
- 24/7 support;
- Social media monitoring;
- An extensive knowledge base for self-service.
7. Improve your onboarding process
Poor customer onboarding is one of the main reasons for churn (23%).
The onboarding process is also different depending on the industry, customer needs, or desired outcome. However, a few things that can help improve it are walkthrough guides, how-to videos, and tutorials. These will help ensure the onboarding is as fast and easy as possible.
Additionally, you can also personalize onboarding for each customer persona.
8. Build relationships with your customers
Strong relationships are critical for loyalizing customers and, ultimately, increasing their lifetime value. The key is to make them feel listened to and appreciated.
Monitor customer health by connecting with your customers regularly, not only when you want to sell them something. Make sure to also pay proper attention to building relationships with the top segments of your customer base (key contacts and executive staff).
9. Upsell and cross-sell
Upselling and cross-selling are the easiest ways to increase customer lifetime value, yet most businesses neglect this. Upselling, in particular, is very useful as 70% to 95% of revenue is generated by it, compared to 5% to30% that comes from the initial sale.
Here’s how you can upsell your customers:
- Offer bundles;
- Offer temporary upgrades;
- Promote popular choices in your checkout page;
- If you have a physical product, provide free shipping for a minimum spend.
SaaS businesses who know how to value their customers
Buffer’s highest value is “Default to transparency”, and to honor that statement, they share some of their internal information (like salaries, revenue, and their customer’s lifetime value) publicly. Needless to say, their openness helps them keep their customers close, as well as attract new ones more easily.
What metrics can you share publicly with your customers to gain their trust?
Slack is another SaaS business you should keep an eye on. Although they offer both free and paid services, they don’t differentiate between their customers and serve them regardless of their financial value. After all, you never know when a free customer decides to become a paying one.
The best way to increase the customer lifetime value
Acquiring new customers is getting harder and more expensive. That’s why it’s better to focus on increasing your customer lifetime value.
Investing in great customer experience pays in the form of profitable, long-term customers. But to achieve a high CLV, you need to know what button to push to drive that number upward.
About the author
As the CEO of Custify, Philipp Wolf helps SaaS businesses deliver great results for customers. After seeing companies spend big money with no systematic approach to customer success, Philipp knew something had to change. He founded Custify to provide a tool that lets agents spend time with clients—instead of organizing CRM data.