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Customer Lifetime Value: How and Why

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How to Calculate and Improve the Lifetime Value of your B2B Customers

Customer Lifetime Value or CLV is a measurement of how valuable a customer is throughout the whole customer-seller relationship. It is also calculated as the net profit gained from an entire customer relationship.

This stat gives managers a measure of what the customers are worth. B2B marketers calculate CLV as it puts a quantitative metric on customer relationships.

Why is it important to track CLV?

CLV is an important metric to track because retaining customers costs less than acquiring new ones. In addition, it help business leaders to develop strategies for acquiring new customers while maintaining profit margins. Regardless, of the definition and the formula for CLV, every manager should aim to improve it. Increased CLV = Profit for the company.

Calculating CLV is important in B2B as it tells managers the likely sales a customer would make over their lifetime. Thus, it can be calculated as a future value as well as historical value.

Historical CLV and Predictive CLV

CLV puts a number on the worth of customers of a company. Let’s look at how CLV is calculated.

For each customer, the historical CLV simply sums up the gross profit from all of their previous purchases. It indicates how much profit the company has made from a customer’s account till now.

The predictive CLV will be the predicted gross profit on a customer’s account. The Customer Value Prediction should show future revenue (net present value) minus costs related with a customer.

How to improve Customer Lifetime Value? 

The core strategy to improve CLV is to retain customers as long as possible. Managers should aim to minimize customer churn as much as possible. The question now arises is how to do this?

Here are some strategies that can help you in retaining your customers for long:

  • Improve customer support:

Provide 24/7 customer support and live chat support to your customers. Track support response times and keep putting efforts to improve them. Train and update your employees to resolve the issues of your customers. Track recurring issues and fix them. 

  • Make onboarding as easy as possible:

Make your onboarding process easy and engaging. Know the pain points of your customer and explain to them how they can use your product to solve those pain points. Provide with the support material through videos, live calls, tutorials, guides, etc. Follow up after the onboarding process to see how everything is going.

  • Keep delivering value to existing customers:

Keep feeding your customers with valuable content about the industry and the product. You can do this through blogs, emails, newsletters, or calls. Educate your customers and give them tips to use the product in the most productive way.

  • Build personal ties:

No customer wants a generic treatment. Customers’ expectations have increased and they want a personalized experience if they are buying from you. Stay connected with your customers throughout their customer relationship. Monitor their progress and assist them throughout. Get to know the people who are using your product as well as make them know you as more than a seller.

  • Upsell and cross-sell:

You have delivered the main product, now you can sell the expensive version of the service that has more value to the same customer. This is called upselling. It increases the scope of the exciting service they’ve bought. You can offer bundled products, temporary upgrades, and special trial pricing. You can cross-sell complimentary services that can enhance the productivity of the existing product.

 

Conclusion

CLV is an important KPI that can indicate the amount of profits a company generates from its customers. Managers must aim to increase the customer retention rate. The more you value your customers, the more they will keep buying from you. Retaining existing customers and upselling to them generates more revenue with fewer costs. Therefore, it is more cost-efficient than acquiring new customers. While you are working to improve your CLV, have a look at B2B marketing strategies that you don’t want to ignore.