How You Can Increase CLV
Do you know how much a customer is worth to your business and how to increase that value?
We were talking with a client in Albuquerque, New Mexico regarding their overall Albuquerque SEO strategy, and the impact that it has on CLV. More specifically, when you know which type of clients bring your business the best overall long-term value, it makes it much easier to target that type of client in the future, with both your digital marketing as well as offline strategies.
Knowing exactly how much every new customer is worth can be very handy when calculating estimated revenue or determining how much your business needs to invest in marketing and sales. It can also help you identify what needs to be done in order to increase customer lifetime value.
The easiest way to increase CLV is to keep your customers happy. A satisfied customer is loyal, spends more or buys more often from your business and stays a client longer. Plus, chances are high they will recommend your products or services to others they know or meet. We have crafted a simple 4-step guide on what you need to do in order to boost you business' Customer Lifetime Value.
Why Customer Lifetime Value is Important
But before going through the steps let's see what customer lifetime value is and why it is important:
- CLV is the total estimated net profit from your entire relationship with a customer.
- It costs 6-10 times more to acquire a new customer than retain an old one!
- Research by Harvard Business School has shown that if a business increases its customer retention rates by only 5%, their profits will increase by 25% to 95%!!!
- Most companies have a small base of loyal customers that spend more and are responsible for the majority of their profits.
Okay, now let's move on to the CLV Boost Guide for Beginners (in 4 Super Simple Steps).
Step 1. Calculate Customer Lifetime Value
Calculating CLV can be very complicated but you can use the simple CLV formula below:
- How long does an average customer continue buying from you? (in years)
- How many dollars, on average, does he spend per year?
- Now multiply those two and..Ta-da! You have your CLV!
For our purposes, there's no need to make this as difficult of a task as it could be!
Step 2. Determine Customer Satisfaction
As mentioned above, CLV is linked to how happy your customers are. So now that you have calculated customer value, you need to measure customer satisfaction. There are many ways to identify how happy your customers are, simply by asking them! You can do that creating online surveys (www.surveymonkey.com for example) and ask your customers to give you feedback. This way you will see where you need to make tweaks and improvements to increase CLV.
Step 3. Increase Customer Satisfaction (and boost CLV)
Don't forget this step! Making customers happier may seem like a complicated puzzle with too many pieces to put together BUT, believe me, even the smallest change can have a huge impact on Customer Lifetime Value. In order to be able to improve customer satisfaction you need to understand what your customers expect from you and meet those expectations.
Here are some simple tactics you can do to boost customer satisfaction AND, consequently, CLV.
- Provide exceptional customer service. In a world where businesses focus on just making the sale and offer very low-quality customer service, your customers will easily see and feel the difference.
- Deliver what you have promised. Set very clear expectations at the very beginning of the relationship and do what you said you would do.
If possible, exceed expectations.
- Be a human, not a corporation. Communicate with your customers like you would with a friend. Call them by their first name, make jokes, get to know them a bit better.
- There are so many things you can do to make your customers happier and it also depends on your industry, the type of business you are in, and your niche.
Step 4. Go back and make tweaks.
After 6 months, measure your CLV again to see if the changes you've made have had an impact. To do so, send another survey to your customers and compare the new data with the ones you had before. This way you can have insight of what your customers think of the changes you've made and if they are happier or not. Again, identify the areas where you can make improvements to increase customer satisfaction even more.
The key ingredient for increasing Customer Lifetime Value is to understand your customers' needs and keep them satisfied after the sale and beyond. Build trust and long-term relationships with your customers, and exceed their expectations in order to have them coming back to you for many many years. And remember...even tiny changes can help you boost customer satisfaction, CLV, and dramatically increase profits.
Make sure that your site is fully optimized, in order to get the website traffic and the sale before worrying about CLV. Our free website audit will help you understand your site and what's going on under the hood.