Ever wondered how successful businesses truly gauge their profitability? They cultivate long-lasting relationships with their customers. Not just any customers, but those who provide the greatest value over time. We at First Pier refer to these as high Customer Lifetime Value (CLV) customers.
CLV is a crucial metric for any e-commerce business, especially in today’s highly competitive market. It's the calculation of the net profit a business extracts from a customer during their entire relationship.
In simple terms: - CLV represents the total amount of net profit a customer will provide to a business during their lifetime. - CLV is the total lifetime value subtracted by customer acquisition and retention costs.
Understanding and enhancing this metric brings into focus your business's long-term profitability, helping you to strategize effectively and boost customer retention and loyalty.
Fact: Retaining a customer often costs significantly less than acquiring a new one.
Let's dive into this concept a little more and help you devise a strategy on how to increase CLV in 5 simple yet immensely effective steps. Throughout, we'll be examining elements such as customer success strategies, fostering relationships, pricing models, loyalty programs, and continuously improving your product or service.
Before we move on, do bear in mind that to make the most of your e-commerce success, it's not just about making an initial sale. It's about forging a profitable, long-lasting relationship with your customers. And that's where we'll help you excel. Buckle up for your journey towards maximizing CLV and boosting your e-commerce performance.
Step 1: Implement a Robust Customer Success Strategy
At First Pier, we firmly believe that the foundation for any plan to increase customer lifetime value begins with a well-structured customer success strategy. This strategy plays a crucial role in not only retaining your customers but also turning them into advocates for your brand.
Improving the Onboarding Process
The customer journey begins with the onboarding process. It's your first opportunity to set the tone for the relationship. Understand that one size doesn't fit all in onboarding, so tailor your process to the customer's requirements. This may involve some trial and error, but your sales and customer support teams are there to find the best way forward with new customers. A smooth, personalized onboarding process can significantly increase the likelihood of customers sticking around for the long haul.
Providing High-End Customer Service and Support
Next, it's all about upping your customer service game. Better customer service leads to a better customer experience, which in turn increases customer retention and improves customer lifetime value. We at First Pier recommend being active on multiple social media channels as around 66% of customers use at least 3 different communication channels to contact support.
Also, speed is key in customer support. Clients usually expect a fast response to their questions and complaints. If 24/7 live chat support isn't feasible, aim to respond to clients as fast as possible, ideally within 24 hours.
Offering Value-Packed Content through Email Marketing
Finally, don't underestimate the power of content in keeping customers engaged and connected to your brand. Email marketing can be a goldmine for customer retention, especially when done right. Instead of merely sending promotional emails, focus on delivering value-packed content that emphasizes your product/service value.
For example, if you provide accounting services, send a monthly email telling clients how much money you’ve helped them save. This approach goes a lot further in increasing customer lifetime value than a simple sales pitch.
Also, consider educational content that is personalized to the customer's needs. Be a reliable source of knowledge for your customers, always ready to help, and they will reward you accordingly.
Implementing these strategies will not only help you retain customers but will set the stage for you to increase customer lifetime value. Stay tuned for the next steps to keep boosting your CLV. At First Pier, our mission is to help you create an e-commerce strategy that puts your customers first, maximizing their value every step of the way.
Step 2: Foster Strong Customer Relationships
In order to increase customer lifetime value, it's crucial to foster strong relationships with your customers. This goes beyond the initial sale and focuses on maintaining a positive connection throughout their journey with your brand. Let's dig deeper into how you can accomplish this.
Building Relationships through Social Media and Live Chat Support
Social media platforms offer ample opportunities to engage with your audience in a more relaxed and interactive way. Regular posting, responding to comments, and leveraging influencer partnerships can all help to increase your brand visibility and foster a loyal online community. But that's not all.
Having a robust customer service system is equally important. As per our expert Steve Pogson at First Pier, "Better customer service leads to a better customer experience, which, as a result, increases customer retention and improves customer lifetime value." One way to achieve this is by offering 24/7 live chat support. If that's not feasible, try to respond to clients as quickly as possible. Research shows that 84% of consumers expect a response within 24 hours if they post complaints on social media (Verfacto).
Listening to Customer Feedback for Continuous Improvement
Another way to foster strong customer relationships is by actively listening to your customers and collecting actionable feedback. This not only gives you insights into how your customers feel about your brand, but also allows you to make necessary improvements.
Consider sending out short surveys to measure customer satisfaction. This can range from asking customers to rate your products on a scale from 1 to 10, to asking for feedback on your product description, presentation, delivery costs, etc. When customers feel heard, they're more likely to stay loyal to your brand.
Sharing the Product Roadmap to Enhance Customer Understanding and Trust
At First Pier, we believe transparency is key to building trust and understanding with your customers. Sharing your product roadmap is a great way to keep customers informed about what's coming next and make them feel involved in your business growth.
Strong customer relationships are the foundation to increase customer lifetime value. They not only ensure repeat business, but also help in promoting your brand through word-of-mouth and social media platforms. In the next step, we'll talk about optimizing your pricing model to further boost your CLV.
Step 3: Optimize Your Pricing Model
Having a robust customer success strategy and fostering strong customer relationships are crucial. However, to increase customer lifetime value, we also need to optimize our pricing model. This step involves encouraging customers to switch to an annual billing cycle, employing upselling and cross-selling strategies, and considering a thoughtful price increase.
Encouraging Customers to Switch to an Annual Billing Cycle
For many businesses, customers stay for an average of 10-12 months. To extend this duration and improve your CLV, we recommend encouraging your clients to switch to an annual billing cycle. This not only commits your customers to a year of usage but also provides you with a higher average CLV and more time to prove the value of your product or service.
The prepaid money obtained from annual billing can be reinvested into your company and product development, essentially allowing your customers to invest in your growth at zero interest. This model also facilitates accurate forecasting and revenue prediction, aiding in long-term decision making.
However, to encourage this switch, you must give your customers an incentive. This could be in the form of a discount (typically 10-20% off), or offering 1-2 months of additional usage for free.
Upselling and Cross-Selling Strategies to Increase Revenue
To further boost your CLV, consider implementing upselling and cross-selling strategies. Upselling involves selling a more expensive version of a specific product or service, while cross-selling refers to selling a similar, complementary product or service to your customers. According to data, 70-95% of revenue is generated by upselling, making it an effective tool to increase your CLV.
For instance, if you offer SaaS software, helping a customer upgrade from a basic plan to a more expensive one can increase your revenue. Cross-selling, on the other hand, could involve offering web hosting and privacy protection services to a business looking to buy a website domain.
Increasing Pricing Considerately for Higher Profits
As a growing business, you might want to increase your pricing due to various reasons such as added new features, improved product capabilities, or simply because the existing prices are no longer profitable. A study by Andreas Hinterhuber suggests that a 5% price increase can lead to a 22% improvement in profits.
However, it's crucial to consider your existing customers when implementing a price increase. Surprising them with unexpected billing changes can negatively impact your customer retention levels. At First Pier, we advise a thoughtful approach to price increases, ensuring that they are communicated clearly and considerately to your customers to avoid any backlash.
Optimizing your pricing model is a crucial step to increase customer lifetime value. In the next step, we will explore how creating a loyalty program and offering incentives can further enhance your CLV.
Step 4: Create a Loyalty Program and Incentives
Earning customer loyalty is like striking gold in the e-commerce world. It's a proven path to sustain and grow your business. At First Pier, we believe that customer loyalty programs, personalized experiences, and incentives are all key components in the quest to increase customer lifetime value.
Running Loyalty Programs for Customer Retention
Loyalty programs are a powerful tool to incentivize repeat purchases and foster customer loyalty. The goal here is to create a win-win scenario for both sides. Customers enjoy the perks and rewards, while businesses benefit from increased customer loyalty and repeat purchases. The Starbucks rewards program is a classic example of a successful loyalty program, offering tangible benefits like free food and drinks that keep customers coming back for more.
At First Pier, we can help you implement a robust loyalty program that aligns with your brand's identity and values. Ideally, your loyalty program should cover all transactions, regardless of their size, making every customer feel valued and appreciated.
Offering Personalized Experiences to Enhance Customer Loyalty
In today's customer-centric world, personalization is key. Tailoring your offerings to individual customers can significantly boost customer engagement and loyalty. Steve Pogson, our expert at First Pier, emphasizes the importance of using customer data to devise targeted promotions and rewards.
Utilizing tools like S Loyalty, we can help you track your customers' purchasing and point redemption history, providing valuable insights into their buying behavior. This data can then be used to devise targeted promotions and rewards, increasing customer engagement and loyalty.
Providing Free Upgrades, Perks, and Incentives for Positive Customer Experience
Freebies and upgrades can create a memorable experience that makes customers happy and ensures they remember the positive experience with your business. Even though some businesses may hesitate at the idea of giving away freebies, the truth is, they work.
At First Pier, we can help you design and implement an effective strategy for offering free upgrades, perks, and other incentives. These incentives not only make a positive impression, but they're also a valuable way to conduct beta research on new products and get feedback from customers before the product launch.
To sum up, creating a loyalty program and offering personalized experiences and incentives are surefire ways to increase your customer lifetime value. In the final step, we'll discuss how investing in continuous product improvement can further enhance your CLV.
Step 5: Invest in Continuous Product Improvement
After you've established a strong customer success strategy, built solid relationships with your customers, optimized your pricing, and created a loyalty program, the final step to increase customer lifetime value is investing in continuous product improvement. By doing so, you ensure that your product or service remains relevant, useful, and valuable to your customers.
Implementing a Dunning Management System to Prevent Churn
One of the first things you can do to improve your product is to implement a dunning management system. As our expert Steve Pogson points out, a dunning management system is a solution that automatically retries a failed payment or expired credit card and sends a drip of renewal notifications to customers whenever a charge to their credit card is declined. It's crucial for any subscription business, as it prevents frustration and annoyance-driven customer churn.
The system allows you to automatically retry charges, ensuring accounts are not closed prematurely. It also keeps customers informed about when the service can be renewed again, saving them time and effort. By automating this process, your support team can focus on other tasks, improving the overall efficiency of your business.
Instilling a Customer-Centric Approach in the Organization
To increase customer lifetime value, put the customer at the heart of your business. This means understanding their needs and preferences and using this information to drive product development. By aligning your product's features with what your customers value, you can create a product that they're more likely to use and continue paying for.
One way to ensure a customer-centric approach is to provide an easy returns process. According to a McKinsey Study, "33 percent of repeat consumers would choose to abandon a retailer if they had a 'difficult' returns experience." Therefore, it's crucial to make the returns process as seamless and hassle-free as possible.
Utilizing Automation and Digital Academies for Customer Training
Lastly, invest in automation and digital academies to provide effective customer training. As research shows, for every $1 a customer spends on training, they will go on to spend $12 on products or services related to the training – a significant ROI.
By creating customer training programs, you educate and engage your customers with your products and services. It's an interactive way of keeping your company top of mind. Tools like a digital academy can provide automated onboarding and training, as well as serve as a content marketing solution, teaching your prospects before they buy.
By investing in continuous product improvement, you can ensure your product remains valuable to your customers, thereby increasing their lifetime value. To truly increase customer lifetime value, it's crucial to put the customer at the center of all your decisions and work towards continually improving their experience with your product.
Conclusion
Recap of the 5 Steps to Increase CLV
As we wrap up this guide on how to increase customer lifetime value, let's take a moment to revisit the five key steps we've covered.
1. Implement a Robust Customer Success Strategy: This involves improving your onboarding process, providing top-notch customer service, and delivering valuable content through email marketing.
2. Foster Strong Customer Relationships: This can be achieved by leveraging social media and live chat support, listening to customer feedback, and sharing your product roadmap.
3. Optimize Your Pricing Model: Consider strategies such as encouraging customers to switch to an annual billing cycle, upselling, and cross-selling, and incrementally increasing pricing for higher profits.
4. Create a Loyalty Program and Incentives: Develop loyalty programs for customer retention, offer personalized customer experiences, and provide free upgrades, perks, and incentives.
5. Invest in Continuous Product Improvement: Implement a dunning management system to prevent churn, instill a customer-centric approach in your organization, and utilize automation and digital academies for customer training.
The Role of CLV in Predicting Revenue Growth and Making Informed Marketing Decisions
As our expert at First Pier, Steve Pogson, often emphasizes, understanding your customer lifetime value (CLV) is crucial for making strategic business decisions. It helps you predict your revenue growth and assists in making informed marketing decisions. With a clear understanding of CLV, you can strike the right balance between attracting new customers and retaining existing ones, maximizing your return on investment and optimizing your ad spend.
High CLV customers are typically more engaged, loyal, and responsive to upsell initiatives. By focusing your efforts on these customers, you can personalize your offers, increasing the likelihood of successful upsells and cross-sells.
Increasing customer lifetime value is not just about making more profits; it's about building strong, lasting relationships with your customers. It's about creating an ecosystem where customers feel valued and want to continue doing business with you.
As Steve Pogson puts it, "Success in e-commerce is not about finding customers—it’s about finding the right customers. With your CLV in hand, you can craft campaigns that target and attract customers who will significantly contribute to your bottom line."
In the end, it's all about delivering value to your customers at every step of their journey with your business, from the moment they first interact with you until they become loyal advocates of your brand.
For more insights on how to increase customer lifetime value and other e-commerce strategies, we invite you to explore our blog and services pages.
At First Pier, our mission is to help you unlock the true potential of your Shopify store. So, let's partner up and start building a future that's profitable for both you and your customers.
