Key strategies to increase CLV for higher ROI

By Rajiv Manalal Gupta, Managing Director

It is important for every business to keep in mind the sentiments of its customers. Customer Lifetime Value, or CLV, is an incredibly important metric that more and more companies have started paying attention to. Its relevance cannot be understated as it costs less to keep existing customers than it does to acquire new ones, keeping in mind money spent on marketing, advertising, entry-level discount offers, and so on. In fact, according to an article published by Harvard Business Review, acquiring a new customer can cost a company anywhere between 5 to 25 times more than retaining an existing one. Moreover, according to the book Marketing Metrics, the probability of selling your product or service to a new customer is about 5 to 20 percent. However, selling the same item to an existing customer has a probability of roughly 60 to 70 percent.

The importance of building a long-term relationship with a customer is no secret. If a customer is happy, he is more likely to remain in the company’s ecosystem, remain loyal to the brand, defend its interests, and likely to recommend its products to others.

There are various strategies to increase CLV. Some of them are:

Onboarding process: As a first step, the onboarding process for a new customer should be easy, simple to understand, and not tedious. Right from the get-go, the customer should be made to feel at home: send them a thank you mail and welcome them on board. In the case of an online platform, saving customer information so that they don’t have to fill it again and again will make it less tedious. For an e-commerce platform, personalizing the experience for the customer based on past purchases will go a long way. A 2017 Salesforce study found a direct link between product recommendations and higher revenue. While recommendations resulted in just 7% of visits to an ecommerce site, these visits drove 24% of orders and 26% of revenue. Even better, 37% of shoppers that clicked a recommendation during their first visit returned again, compared to 19% of shoppers who didn’t come from a recommendation. This proves that personalization can deliver immediate results as well as longer term.

Upselling and Cross-selling: Encouraging more transactions in each sale or cross-selling, and enabling a customer to buy a more expensive/better quality product or upselling are incredibly useful tools which add to what a customer spends on your products in his/her lifetime. When you increase the average transaction value, you are maximizing your CLV. When up-selling, the key is to make the product seem worth it. Moreover, tactics of giving a discount when purchasing two or more items, and free delivery with a certain amount of purchase are underutilized. It is incredibly important however to draw the line and not go overboard, which could potentially lose you the customer.

Maintaining a steady flow: The best way to increase CLV is to maintain steady and recurrent cash flow from existing client purchases. Tie them to a long term contract – instead of monthly payments, encourage them to switch to annual payments by offering a discounted price. Such customers get tied-in long term, thus ensuring predictable revenue and a higher average CLV. This also gives your customers time to analyze your product or service in depth. Moreover, the prepaid money can be reinvested into your company and product development. Long-term subscription can also be bundled with benefits like more you buy, more you save. For example, a points accumulation scheme can be used against future purchases. Here, a customer is getting an incentive to buy more and more.

Cross-channel experience: Consumers want to be treated with consistent and positive experiences, both offline and online. Social media is an effective method for boosting the number of transactions. The more relevant and active your brand is on social media platforms, the more you will be in your customer’s minds the next time they think about making a purchase. Moreover, showing your customers some recognition on social media goes a long way in building a long-term happy relationship. A focus on cross-channel experience is thought to increase CLV by 36%.

Speedy resolution of customer complaints: Take a dynamic approach to train and guide your sales team to ensure a high customer service standard. For example, if a customer is defaulting on payment repeatedly, speedy resolution of whatever difficulties a customer might be facing becomes essential. The company should make it a priority to focus on improving clarity of explanation and time taken to resolve the query. There are statistics to back how important after sale services are: According to a report by Harris Interactive, 73% of customers feel friendly employees or customer service representatives is what makes them stick with a brand. According to a Microsoft finding, customer service is an essential factor in choice of loyalty to a brand for 96% customers. Similarly, in a report published by Zendesk, of those reporting a bad customer experience, almost all of them (97%) changed their future buying decisions. More specifically, 58% stopped buying from the company, 52% switched to a different company for that product or service, 52% told others not to buy that product or service, and 48% were unlikely to consider that company when making future purchases.

It is incredibly important to offer Omni-Channel Support. As a business, it is important to be active on as many channels as possible. To contact customer support, around 66% customers use at least 3 different communication channels. Ideally, 24×7 e-mail and phone support should be provided, preferably with live chat support. Most companies provide remedial services on social media as well!

Operational efficiency: CLV is indirectly, yet closely linked to operational efficiency. First and foremost, providing a good, stable and quality product that lasts for a long time is the most important aspect, for any business. Customers who have had a very good experience are 3.5x more likely to repurchase and 5x more likely to recommend the company to friends and relatives than if they had a poor experience. If there are delays in time to market, products being out of stock for a long time, or even poor after sales support, there’s a likelihood the customer will switch to an alternative brand, resulting in reduction of CLV. Thus, finely tuning operations is important. Here on time delivery of the product/service becomes important. Moreover, it should not be on the customer to return the product manually. Easy exchange/ returns are a must for maintaining healthy customer sentiment.

Loyalty programs for customers: The customers should get an impression that the brand is looking after them. Loyal customers are seven times as likely to test an offering, five times as likely to buy again, and four times as likely to refer. It’s amazing how a simple thing like reaching out to people, opening a line of communication can have a positive impact on the relationship. Send a personal thank you message. Send random gifts to create excitement – who doesn’t like free stuff? Offer a special deal or discount based on the customer’s personalized preference. Send birthday wishes and discounts. Provide exclusive offers/ 24-hour only offers for loyal customers which would create an urgency to buy. Moreover, take customer advice and credit them for it. This will create goodwill.