Travis Jamison
March 22, 2022

Customer Lifetime Value: The Metric Small Businesses Can’t Ignore

Customer Lifetime Value (CLV)

If you own a small business, you’re probably considering ways to expand. Finding new customers is undoubtedly one way to accomplish this, and it is something you should do. Is that, however, the only way? Or is there an effective strategy to deal with existing customers?

According to studies, you have a 5-20% chance of selling your product to a new customer, versus a 60-70% chance of selling to an existing customer. If that’s the case, why is everyone so focused on acquiring new customers? Well, mostly because they don’t monitor basic metrics and conversion data.

Customer Lifetime Value, or CLV, is one of the vital metrics in this case. Major corporations like Netflix and Amazon are keeping a close eye on this metric because it serves as an indicator of success. If your CLV increases, your business is doing well. If it’s declining, you’re losing customers and there’s a problem somewhere. It’s just simple math. So, let’s take a look at what CLV is and how you can use it to your advantage.

Why Customer Lifetime Value Is a Vital Metric for Your Business

Customer Lifetime Value is the total value that a customer brings to your business over the course of their relationship with you (lifetime). Or, to put it another way, how much is your customer worth? This should be a key metric for measuring your success.

Calculating CLV is relatively difficult, but there are formulas to follow. Let’s take a look at a simple example.

If you have a service that costs $100 per month and one customer pays it for two years, your CLV for that customer is $2400. They are paying $100 per month for a period of 24 months. Of course, it’s not that simple, and your CLV should include all of your customers and other variables. This is simply to demonstrate how much net profit your company can make from one customer over the course of two years.

In a survey conducted by Criteo in the United Kingdom, businesses that did an excellent job of measuring their CLV upped their sales by 81%. Customer retention and satisfaction are central to CLV. What you want for your company’s growth is to keep your current customers while increasing their lifetime value.

Existing customers are more likely to spend money with your company than new customers. Finding a new customer and onboarding them costs five times as much as keeping an existing customer. If you take good care of your customers, they are more likely to return to you when they need something you have to offer rather than going to your competitor.

Now that you understand why CLV and existing customers are so important, the next question is how to keep them happy and motivate them to stay and spend more.

Incentivize Customers to Sign Up for Yearly Subscriptions

Not every type of business will be able to offer some kind of subscription plan, but if you’re in an industry where that’s an option (if not common practice), you’ll definitely want to offer subscription plans.

There are several reasons why you should encourage customers to sign up for a yearly subscription. Consider it this way. You’re biding your time until they see how good your product is, and you’re raising your average CLV. The important thing, however, is that they are investing in your business in some way. You can put the money they give you towards improving your product or increasing customer satisfaction.

As a result, having them on an annual subscription is in your best interests. Motivate them by lowering the price by the standard 10-20%, or better yet, tell them they can get one or two months free this way. It could still be the same price for you, but customers appreciate hearing that something is free. So, you can present your annual subscription in both ways.

Let’s take a look at the pricing for Ultimate Meal Plans.

  • For starters, their yearly subscription has a “BEST SAVINGS” tag. Tag your subscription to make it more appealing to your customers. It’s the first thing that grabs their attention and holds it.
  • Secondly, they put “Save 25% off our monthly pricing” in green letters, which is also something that will be noted soon afterward.
  • Last but not least, note the manner in which they represent their prices. They’ve crossed the $15 per month mark as a price they’d offer you on a regular basis. They did the same thing for the monthly subscription, but the price is $19 per month. Even with this minor detail, in which they determine the price, they make you feel as if you have a discount for every type of subscription they offer.
  • The best part is the price below, where you can see a large $8 and next to it per month, $96 per year. They represented their prices per month ($14/$12/$8 for monthly/quarterly/yearly subscriptions) on their website. Besides, seeing $8 is a lot better than seeing $96.

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Target Enterprise Customers

There’s quite a bit of discussion over the precise definition of the term “enterprise customers”. Some believe that the enterprise level is defined by the size of a company, the number of employees it has, its annual profit, or even the number of countries in which it operates. However, we can all agree that enterprise customers have a lot of money to invest in themselves and want the best product and the best service.

If you are fortunate enough to have enterprise-level customers and clients, you’ll certainly want to make them a top priority. You want them to be satisfied and impressed with your product and the support you can provide. They will have a significant impact on your average Customer Lifetime Value and your company’s profit. To keep the attention of enterprise customers on you, focus your content on how valuable your product is and how you will prioritize them. Highlight the problems you can solve for them, rather than the features of your product.

To illustrate…

Let’s take a look at Affinda, a company that uses artificial intelligence to help businesses process their data and other documentation. In addition to excellent copy and a CTA button in their hero section, they quoted Gartner’s research, saying: “By 2023, 40 percent of Infrastructure and Operations teams in large enterprises will use AI-augmented automation, resulting in higher IT productivity with greater agility and scalability.”

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They emphasize how much you need them and how that need is only growing with time. You can find their features and industries they already work with, but the benefits they emphasize are what seal the deal.

They used red letters to make it clear what they are assisting you with. “95% reduction in document processing time,” “Enhanced insights from an unlimited volume of existing data,” “Close to 100% accuracy in information extraction – better than human level,” and these are just a few of the main benefits listed on their homepage.

Implement Loyalty Programs

A loyalty program is an excellent way to retain customers and encourage them to spend more money with you. There’s no universal recipe for a good loyalty program, so you have to be creative and adapt it to your business. And the best part about a loyalty program is that you can use as many ideas as you want to make it unique to your brand. Here are some basic things you can do:

  • Create a point system for rewards. Give shoppers points for each purchase and allow them to spend these points on something else.
  • Give your customers different levels of status based on how much money they spend and the benefits that come with each level. You can also include some benefits they can get from your partners if they have status or make purchases from you.
  • Consider offering access to deals and discounts for a monthly fee.

Consider the Oneworld Alliance for airlines as a good example of a loyalty program. They have 14 airlines as members, and while each airline can customize its loyalty program, they all follow the same basic rules.

By establishing your status with one of them, you gain access to the alliance’s benefits. So, the more you travel with one of them, the more miles you get to spend on whatever you want and elevate your status. And the higher your status is, the more perks you get, such as airport and flight benefits and better service support.

Publish Content That Targets Existing Customers

There are numerous types of content that you can include on your website. You can start a blog and cover topics that are interesting and useful to people who use your products. For example, if you sell healthy food, you can write about healthy recipes that include your products as ingredients.

Blogging is not the only way to share tips on using your product. You can create your own wiki pages to explain your product or guides on how to fully utilize it. Depending on your industry, case studies and whitepapers can also help support your niche and product.

Whatever format you choose, the content should be valuable to your customers and demonstrate how to use your product in detail. Look at it this way: your customers are most likely unaware of your product’s full potential, and your job is to unveil that potential to them.

Optimal Workshop publishes a lot of content that educates its users on how to get the most out of their product. They share that content on their blog and social media in order to reach as many users as possible. They don’t stop there, though. When you visit their website, look for “learn” in the menu – that’s where the treasure lies.

You can select “101 guides” to learn how to use their features, such as “Tree testing 101,” where they explain everything you need to know about tree testing and how to use their tool to do it.

They also have “Product demonstrations” (videos of using their tool for their features) and possibly the most interesting “Case studies,” where you can see how their clients use Optimal Workshop to solve real-world problems.

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Inspire Loyalty by Showcasing Your Values

According to branding strategies, you need to identify your values and make them clear to everyone in order for your brand to have an impact on your customers. Yes, you will probably encounter people who disagree with you, but there are also people who share your values. You’ll find a smaller but devoted customer base that shares your values and is more likely to make an emotional purchase.

Skillcrush is not afraid to demonstrate the brand’s values, and they do it proudly. They share a lot of content on their blog and social media platforms that demonstrate their beliefs and emphasize equality and social justice. Their message is “Tech is for everyone,” and they convey it genuinely.

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Listen to Your Customers

“72% of customers will share a positive experience with six or more people. On the other hand, if a customer is not happy, 13% of them will share their experience with 15 or even more,” according to Esteban Kolsky’s research.

What matters here is determining where the churn is occurring and what is causing it. The first thing you need to do is gather data. Conduct an NPS survey and analyze the results. Identify customers who are about to churn and take action before they do.

You can try to conduct a more detailed customer satisfaction survey on those customers to figure out what the issue is and how to fix it. They are more likely to stay with you if you show that you care about them and want to solve their problems.

In Closing

These are just a few of the strategies you can use to increase your average Customer Lifetime Value. So, go ahead and take the time to figure out what works best for you. The important thing is to take CLV seriously as a metric that your small business can’t afford to ignore.

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Travis Jamison is an entrepreneur, investor, and proud pug parent. As the Founding Director of , he serves as an investor and strategic growth partner for bootstrapping founders of online businesses.