Customer Lifetime Value: The Metric that Helps Build Customer Loyalty

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With a recession on the horizon, customers are becoming far more selective with their dollars. Reaching the right people, in the right places, with the right message, is now that much more important. Most companies will not have the resources to reach a wider audience and will need to become hyperconscious of where they’re spending their money. Unnecessary costs in your customer journey can now severely sink your ship.

To ensure you are reaching customers effectively, the Pareto Principle, or more commonly known as the 80/20 rule, is a great place to start. This rule suggests that the top 20 percent of your customer base drives 80 percent of your revenue. This 20 percent of customers are those who truly care about your business and are just as invested in your success. Tapping into this highly valuable customer base will allow you to uncover key revenue opportunities, which will help navigate these uncertain times with confidence while also helping to build better experiences for all your customers.

Now the question remains, how do you identify this group of valuable customers? By using Customer Lifetime Value (CLV) — a metric that measures how much revenue is generated from a single customer over their entire relationship with a company. Although this KPI is not new, the data collection capabilities now available in the current market allows companies to build a much more accurate picture of their customers.

Customer journeys are also a lot different than what they used to be and are changing at a much faster rate. CLV is a great way to track these continuous changes and have a clearer idea on what is going well in your customer experience (CX) and what needs to be improved.

Here are three steps that can help you retain your most valuable customers using CLV.

1. Get aligned with your team and across your organization.

Before you start calculating your CLV, start by agreeing on what KPIs you want to focus on and what value realization message you are delivering. Without the correct preparation and definition of what value you are bringing to your customers, you will deliver inconsistencies, leaving your customers confused or dissatisfied.

While ensuring your messaging and metrics are aligned within your own marketing department, cross-departmental collaboration is also important. A consistent brand story across all channels, such as Sales and Customer Success will be crucial to delivering a consistently good customer experience.

2. Use CLV to determine where you’ll have the biggest impact.

To find where you can have the biggest impact, you must identify elements that increase your organization’s CLV in addition to those that contribute to lowering it. This will allow you to keep doing the things that are working well, while also pivoting based on the potential customer pain points you identify.

Once you understand where your customer journey is excelling and where it needs support, the focus now shifts to delivering on your value realization. If you can provide your best customers with an experience that not only meets their expectations but exceeds it, you can be sure to greatly improve your CLV forecast and uncover key revenue and cross-sell opportunities.

Providing great value must be a continued effort if you want to see continuous positive changes in your CLV. It’s important to create products and/or deliver services that continuously add value to the customer journey. Give customers what they ask for, and not what you think they need.

3. Get serious about listening to your customers.

In this current economic climate, your customers’ needs are constantly changing and only by continuously listening to them will you be able to keep delivering good customer experiences.
To keep this pulse on your customers, collecting their feedback will be the key to bettering their experience and increasing your revenue. By calculating CLV, you can pinpoint exactly who your most valuable customers are and survey them to retrieve the rich and thoughtful insights to better your business.

Here’s an example of how building a community of valuable customers can help better the overall customer experience. To engage with customers in more transparent ways, Twitch built a community of 50,000 gamers to allow for constant feedback collection in a structured and scalable bike way. With access to these insights, Twitch was then able to create more authentic experiences for their customers.

Following up with your customers will also help validate that they made the correct decision by investing in your brand. Putting in the extra CX effort will make the biggest difference in bumping up your CLV. In addition to customer feedback helping you to increase CLV, it can also greatly help you de-risk your business decisions. Evaluating your customers’ insights will ensure that all your decisions will resonate with your audiences before you’ve launched them to market.

Finally, when it comes to feedback, ensure you are diversifying your collection methods. Consider investing in an integrated CX solution that can collect feedback through a variety of approaches such as interviews, surveys, and communities. This will help streamline and automate parts of the process for maximum efficiency.

Conclusion

CX will be the only reason someone selects you over a competitor. Having your customer at the heart of your decision-making will help you build the best business strategy as it is built around their needs, not yours.

Once you’ve understood where value is created along your customer journey and developed a feedback model that helps you inform your CX initiatives, your CLV will flourish, leaving you with committed and loyal customers.

Mary Kay Evans
Mary Kay Evans, has over 25 years of experience transforming the way companies engage with their markets, their clients, and their employees. As Chief Marketing Officer at Alida, she is a passionate change agent focused on driving innovative marketing strategies and process improvements from ideation to implementation. Evans has served as a leader, consultant, and advisor to many leading technology companies and has a long history of substantial contributions to high-growth ventures.

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