It’s no more a bag of sunshine and a pot of gold at the end of the rainbow. Welcome 2023, a year of compressed valuations, slashing budgets, grieving layoffs, and spiraling inflation that just got us thinking is the worst yet to come.
Crisis gets the best of us, as they say, and during war times, the need to focus on customer value and retention has surpassed many strategies.
According to an article by Neil Patel, it takes 7X more to acquire new customers than to retain existing customers.
An important metric that rules the health of subscription businesses is Customer Lifetime Value (CLTV).
Customer Lifetime Value (CLTV) is the average revenue that you can make from the customer before they churn.
CLTV is an important metric because unless we know how much we would make from a customer, we would not know how much to spend to acquire the customer. According to David Skok, a guiding principle for CLTV is LTV = 3x CAC (cost of customer acquisition). This essentially means, for every dollar that you place to acquire a customer, you get back 3.
Companies that spend relentlessly to acquire new customers, and have low lifetime value, will bleed on profitability.
According to Paddle, one of the simplest ways to calculate CLTV is:
CLV = Average (monthly) revenue per user (ARPU) x average contract length (ACL) or in other words, CLTV can be calculated by the Value of the customer to the business * average lifetime of the customer.
Churn Rate and CLTV are highly influenced by each other. The longer your customers stay with you, the lower the churn rate and the higher the LTV. Bliss! This is definitely a zone you would want your business to be in.
So, how exactly do you increase Customer Lifetime value?
Here are 5 strategies to increase your CLTV.
Be it a product or service, customers like ‘kid gloving’. Depending on whether you have a self-serve way of onboarding with tutorials, a guide, and a seamless UX or an assisted onboarding with a live onboarding demo, customers need to be educated on what is the best value they can receive from your product or even service.
It’s interesting how the gap between customer unawareness of your product widens as you build new features. This requires constant education and reinforcement of value that your existing customers can reap using your product. Customer Re-boarding demos could mean different tactics like communication on New feature launches, webinars, access to early beta sign-ups, and free upgrades to experience new possibilities of your product.
They don't say customers are kings or queens for nothing! Rightly so, and they do need to be treated with the royalty they deserve. Apart from Customer capital or paying for a product, customers part with something very valuable- the power of feedback, referrals, reviews, and loyalty.
Vymo, the leading Sales Engagement Platform for Financial Institutions, recently organized Nudge 2022, their annual banking conference. The conference brought together their customers and banking leaders.
Fitbots for instance gives badges to power users and certified OKRs experts, who go the extra mile to spread the love of OKRs.
According to a Marketing Metrics study, your probability of selling to a new prospect is between 5 percent and 20 percent. However, the probability of selling to an existing customer is between 60 percent to 70 percent.
Customer perceived value (CPV) is what customers think about your product or service and how much they are willing to pay for it. Upsell and Cross Sell plans should be spun around CPV, to intently understand what would make customers purchase more of the same (Upsell) or sell more of your other offerings (Cross Sells).
Map out your customer journeys, to identify the pain points and the time when an upsell or a cross-sell offer would be of value to them.
Hubspot makes a great call out for strategies to effectively Upsell and cross-sell.
What would make your users come back monthly, weekly, daily, or even better, hourly?
According to Whatfix, Product stickiness can vary depending upon.
The average user opens Facebook at least eight times a day (Forrester) and spends 33 minutes (Broadband Search) a day browsing the application. That’s roughly 16.5 hours spent on Facebook a month. On the other hand, most American consumers (61%) only order food delivery once a week.
For Dropbox, it is a direct sync of files to the cloud.
Google Photos offers 15GB of online storage for free, ease of viewing, organizing, and automatic enhancements. The service's sharing and printing options should appeal to many.
For a B2B product like Fitbots, dashboards give key insights on OKRs progress, which are difficult to get otherwise.
Enter OKRs (Objectives and Key Results), a strategy to execution framework, which helps companies innovate, change and grow with velocity. These are not business as usual or run the business KPIs. They are linked directly to moving the strategic themes of the company forward.
One of the key callouts on writing OKRs is they are written as teams, not in silos. OKRs bring cross-functional teams together, to solve a business problem or move a strategic metric forward.
OKRs also shift teams from thinking inputs or activities to outcomes. Click here to read the Ultimate Guide on OKRs.
While writing OKRs, one would need to think intently of business value and how to measure it with value add metrics.
Objectives tell you “What do we need to achieve?”
Objective statements start with a Verb + What would you like to accomplish + Business Value
Key Results focus on “How do we measure success?”
Key Results Start with a Verb + Metric to be measured and improved + movement from X to Y
An OKR to improve Onboarding experience: Going by the strategy on how a killer onboarding experience is key to increasing customer value.
Objective: Improve onboarding experience to improve weekly product adoption.
KR 1: Reduce page download speed from 6 seconds to 1 second
KR 2: Increase key feature activation from 20% to 80%
KR 3: Increase week 1 adoption from 3 minutes to 15 minutes
The activities would intently look at which features are of the highest value during week 1 of a new user or scrupulously place the right onboarding workflow to make product awareness a no-brainer.
When it comes to up-sells and cross-sells, one can look at customer segmentation and focus on the target customers. Upselling as a strategy would not work for those customers who have poor product adoption.
Objective: Focus on top 10 ‘power’ customers to expand revenues through upselling
KR 1: Increase high-value touchpoints from 1 to 3 per quarter
KR 2: Reduce time to respond to support tickets from 2 hours to 30 minutes
KR 3: Launch Top Priority Customer Club membership by March 31st
KR 4: Increase expansion revenue from USD 20K to 55K ARR
Activities that link to these Key Results, could revolve around QBRs, priority access to technical support, email notifications to proactively inform customers about usage or user addition or even inviting these power users as webinar speakers.
Here’s an example of how Cross-sell can revolve around strategic accounts.
Objective: Increase new offerings in strategic accounts to drive expansion revenue
Here are some Key Results that can help measure success.
KR 1: Increase product adoption (DAU/MAU) in strategic accounts from 20% to 60%
KR 2: Improve Customer Pulse Score from 3.5 to 4.5
KR 3: Add beta users to new offerings from 100 to 2000
KR 4: Accelerate beta trial to buy from 3% to 8%
You can access our range of 100+ OKR templates on Fitbots OKRs with just a click!
To conclude, keeping an eye on CLTV can make your business a revenue machine, and a hallmark of companies that are built to last.
At Fitbots we are obsessed with OKRs, KPIs, and strategy execution. While helping you figure out what to measure, we strongly believe actions drive progress. Fitbots software is specially tuned to help you drive actions with both OKRs and KPIs no matter how you choose to run your business.
Vidya Santhanam is the Co-Founder of Fitbots OKRs. Having coached 600+ teams, and conducted 1000+ check-in meetings, Vidya likes writing about Metrics, high performance, and leadership.
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