CLV is probably an essential metric for any business, yet it can be hard to increase without affecting your prices. Although raising rates or introducing new pricing tiers may lead to an immediate bump in CLV, it can also lead to customer churn and dissatisfaction.
So, how do you go around this?
Today, we'll explore a few strategies and methods to do it. We'll also touch on data-driven marketing tactics and provide valuable tips for success.
Table of contents
- What Is Customer Lifetime Value (CLV)?
- How Can You Calculate Your Average CLV?
- Why Is CLV So Crucial for Your SaaS Company?
- How Can You Increase Your CLV Without Touching Prices?
- Additional Ways To Increase CLV Using Data-Driven Marketing Techniques
What Is Customer Lifetime Value (CLV)?
Customer lifetime value, or CLV, is a metric used to measure the total amount of money a customer will spend on your products and services throughout their life with your company.
It's essential to keep this figure in mind when evaluating marketing and customer retention strategies because it helps you determine how much you can invest in acquiring and retaining customers.
By increasing a customer's CLV, you'll be able to make more money from that customer and won't have to rely as much on acquiring new customers.
How Can You Calculate Your Average CLV?
To calculate your average CLV, you need to start by calculating the total amount of money customers spend over time.
Then, divide this number by the total number of customers during that period. This gives you your average CLV.
For instance, if you generated $100,000 in the last 18 months and had 20 customers, your average CLV would be $5,555.
Of course, this is just a general calculation, and some customers may be worth more than others.
Also, if you're running a subscription-based business, you'll need to adjust this calculation for customers who might have been with you for longer.
CLV isn't a static number; it can fluctuate depending on customer behavior and the marketing strategies you use to retain them.
Why Is CLV So Crucial for Your SaaS Company?
A high CLV means you're making more money from each customer. It also indicates that your product or service is well-liked by customers, which signifies that your marketing efforts and customer strategies are working.
Not only that, but a high CLV can help you make better decisions when it comes to acquiring new customers.
For instance, if you're spending $10 to acquire each customer and your average CLV is $25, you'll be able to make more money in the long run.
If your CLV is lower than the amount you're paying to acquire customers, it might be time to reconsider your strategies.
Again, the goal is to get customers to spend more with you and ensure they stay with your SaaS business for years. The longer customers are with you, the higher their CLV will be.
How Can You Increase Your CLV Without Touching Prices?
Now that we've established why CLV is so important, let's look at some strategies for increasing it without changing your prices.
1. Increase average contract length (ACL)
ACL is a measure of how long customers stay with you. The longer they stick around, the higher your CLV will be.
Besides, there's a high correlation between contract length and churn. So, the longer customers stay with you, the less likely they are to leave.
You can increase ACL by offering various incentives or discounts for long-term contracts. You can also introduce loyalty programs and rewards to encourage customers to stay with you.
Ultimately, it's all about finding out what works best for your customers and creating an incentive plan to keep them loyal.
Some effective strategies include:
- Offering discounts for long-term contracts. Offering discounts or exclusive deals for customers who sign up for longer periods can encourage them to stay with you.
- Introducing loyalty programs: Introducing a loyalty program or rewards system can also be a great way to increase customer retention. This way, you will incentivize customers to stay with you for longer.
- Improving customer experience. Improving the customer experience by providing better customer service. Respond quickly to inquiries, or provide more value-added services like free training can also encourage customers to stay with you.
2. Increase customer engagement
Customer engagement is another critical factor when it comes to increasing CLV. The more engaged customers are with your product or services, the more likely they will stay with you for longer.
You can use data-driven marketing techniques like segmentation and personalization to increase customer engagement.
By targeting specific customers with tailored messages, you can increase their chances of engaging with your product or services.
You should also focus on creating relevant and interesting content to your customers and providing helpful resources like tutorials or FAQs.
Finally, email campaigns can keep customers informed and engaged with your product or services.
For instance, you can send out newsletters to keep customers up-to-date with the latest news and updates or promotional emails with discounts or exclusive deals.
Or, if you're launching a new product or feature, send out an email to let your customers know about it.
Some other effective strategies include:
- Promoting user reviews and social proof. Ask your customers to write reviews of your product or service and feature them prominently on your website or in emails. This will help to boost engagement and build trust with potential customers.
- Using customer feedback to improve existing features. Asking customers for feedback on existing features or services can help you to understand what they like and don't like and make necessary improvements.
- Reducing complexity. Reducing complexity in your user interface or product can reduce confusion and make it easier for customers to use.
- Product tutorials and FAQs. Providing helpful tutorials and FAQs can help customers understand how your product works, which will increase engagement.
You can significantly improve your CLV without changing your prices by focusing on customer engagement and increasing average contract length.
3. Use Data-Driven Marketing
You can use data-driven marketing techniques to increase CLV as well.
By collecting data on your customers' behavior and preferences, you can better understand what drives their buying decisions and use this information to create more effective marketing campaigns.
For instance, you can use customer segmentation to identify particular segments of customers who are more likely to buy from you and target them with customized offers and messages.
You can also use data-driven marketing to personalize emails and other communications. By sending out messages that are relevant to the customer's interests.
Cohort analysis plays a crucial role in understanding CLV. With this technique, you can group customers into 'cohorts' based on similar characteristics and then examine their behavior over time.
This will help you identify trends and understand what makes customers stay with you longer.
For instance, you might find that customers from a particular cohort were more likely to become loyal if they received a discount on their first purchase.
You can use this to inform future marketing campaigns and ensure you are targeting the right customers.
You can also use your findings to improve your marketing campaigns, reduce costs, and increase CLV.
- Improve targeting. By understanding your customer cohorts better, you can target them with more relevant offers. This will result in higher conversions and increased CLV.
- Reduce costs. You can reduce your marketing spending and improve efficiency by targeting only the customers who will most likely convert.
- Increase loyalty. By understanding what makes customers stay with you, you can tailor offers and messages to ensure they remain loyal.
- Increase product usage through marketing. By understanding customer preferences, you can tailor your marketing campaigns to increase product usage (e.g., product-led webinars or tutorials).
Additional Ways To Increase CLV Using Data-Driven Marketing Techniques
Before wrapping up, let's explore some additional ways to increase CLV using data-driven marketing:
A/B testing is a great way to test different versions of your website, emails, or other communications, to understand which performs better with customers. Use this data to make improvements to your campaigns and increase conversions.
By using customer data, you can customize the content of emails or other communications based on the customer's interests. This will make your messages more relevant and increase engagement.
You can improve customer satisfaction and loyalty by creating feedback loops that enable customers to provide their opinion on your products and services.
What's more, using customer feedback to identify areas of improvement and fix them will lead to a better customer experience and, thus, higher CLV.
Gamification can help to engage and retain customers by encouraging them to achieve goals or complete tasks. This will help to create a more enjoyable customer experience and thus increase loyalty.
For instance, you can reward customers for completing tasks or providing feedback, giving them a sense of accomplishment and thus increasing their loyalty.
Or, you can use leaderboards to show customers their progress compared to others and encourage them to keep going. This will help build a sense of competition, motivating customers to keep engaging with your brand.
By focusing on customer satisfaction and engagement, providing more value through additional features or services, and using data-driven marketing techniques, you can increase customer lifetime value and drive long-term success for your business.
There you have a few ways to increase CLV without touching prices.
CLV is the most critical metric for any business, so it's crucial to optimize it. Hopefully, this guide has given you some ideas on how to get started and increase CLV for your business.
The key is to focus on customer satisfaction and engagement, provide more value through additional features or services, and use data-driven marketing techniques.
If you follow these tips, you'll be well on your way to increasing CLV and driving long-term success for your business.