Your business will only ever be as successful as your customers allow it to be. If your customers feel distant and underappreciated, you’ll never get them to convert. To build a profitable business, you must treat customer lifetime value like the important metric that it is.
Customer lifetime value, or LTV, is a simple yet incredibly important measurement of a company’s success and long-term viability. In the most basic sense, it’s the total amount of money that a customer contributes to your business (in the form or revenue) throughout their entire lifetime as a customer.
In other words, let’s say you run a sporting goods company that focuses on selling little league equipment and youth sports gear. Your average customer is a parent who buys things like baseball gloves, soccer cleats, and golf clubs for their child. If the average individual is a customer for eight years and spends $250 per year, the LTV of that customer is $2,000. (Some customers will spend $1,000 and others will spend $5,000, but this is the average.)
LTV is important because it provides a balanced, long-term view of value (as opposed to a quick analysis or snapshot that could be based on seasonality, whims, or hot trends). When you understand LTV, you’re able to zero in on how much you should spend to acquire a customer and what rate of return you can expect.
One of the primary goals of any profitable and sustainable business should be to increase LTV. In doing so, it becomes much easier to build a successful organization.
LTV impacts every area of your business. This includes branding, marketing, advertising, pricing, innovation, product selection, positioning, and customer service. Here are some tips you can use to enhance LTV in your organization moving forward:
The customer onboarding process is critically important. Though excessive spending on customer acquisition may initially seem illogical (eating away at your profits), you have to view it through a long-term lens. The gold is found in repeat customers. Yes, you might barely break even on the first purchase, but every subsequent purchase is money in the bank.
Don’t skimp on onboarding. Research shows that poor onboarding is directly responsible for 23 percent of customer churn. By improving this aspect of your business – making onboarding faster, easier, and frictionless – you can delight customers from the start and increase their chances of becoming repeat buyers.
Once you have a customer in the fold, it’s all about nurturing them so they’re more likely to continue giving you their dollars over time. This is done in a variety of ways, but customer service plays a key role.
Enhance customer success by helping your customers reach their goals. Delight them each step of the way by providing value, responsiveness, and clarity. Anything you can do to limit friction will help you keep customers longer.
Listening to your customers is a great first step. However, it’s not enough to gather feedback. If you want to delight your customers, you need to collect customer advice, implement these suggestions, and then give them credit for the feedback. Not only does this lead to a better product or service, but it helps your customers feel listened to.
This final point applies mainly to service-based businesses and SaaS companies. When you have a loyal customer who supports you, raising prices can create some friction and cause otherwise happy customers to jump ship. Yet, over time, it becomes necessary to raise prices in order to increase profits and grow the business. How do you do both?
The key is to use grandfathered pricing. If your initial customers are paying $9 per month and you want to raise your prices to $14 per month, let your initial customers stay at their same $9 rate and charge the higher rate to new customers. (Your customers will appreciate the gesture and will be less likely to cancel, as this will disqualify them from their “discounted” rate should they ever decide to rejoin.)
Enhancing LTV isn’t easy, but it is necessary. It’ll take a concerted and continued effort on multiple fronts. But if you’re willing to put in the work upfront, you’ll reap the rewards for years to come. High LTV indicates high loyalty – something that will help your business enjoy organic growth for years to come. Do the hard work today and reap the rewards tomorrow.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
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