Neglecting to increase customer lifetime value…it’s one of the biggest mistakes marketers still make.
They spend tons of time and marketing budget on getting a prospect to make a first purchase.
Then, somehow and for some reason they neglect to see the value in generating follow up purchases.
Here’s how to increase customer lifetime value
Customer Lifetime Value (CLV) is really a measure of how much a customer is worth to your company. And the calculation is simple really. Just take the total profits created over the duration of your relationship and minus your expenses.
However, you can also project the revenue a customer will generate during their lifetime…and use that to strategize your customer acquisition efforts or even estimate your marketing costs for the purpose of assigning a budget.
One word of caution…
Be careful about targeting “cheap” customers. These guys typically don’t hang around to make a follow up purchase. And, they always end up sucking away your profits.
Instead, invest in “good” customers that stick around a while and are eager to pay for your solutions to solve their problems. True, they may cost more to acquire on the front end. But they’ll more than make up for it with continued purchases for years to come.
The Harvard Business School proved this in a 1990 joint landmark study with Bain & Company. In industry after industry, the early years of developing a relationship with a customer proved costly. But only after the cost of serving loyal customers fell and their follow-up purchases rose did companies generate big returns.
Bottom line: increasing customer retention rates by a mere 5% increased profits by up to 95%!
If done right, any business owner can boost their profitability by getting these existing “good” customers to buy again…rather than persuading new prospects to make a first purchase.
With that, here are 5 easy ways to increase customer lifetime value and boost your profitability.
1. Think long-term. Look, you already know it’s important to build a relationship with a prospect before you can expect them to buy from you. And doing it right will take some time. But it’ll pay off big with increased revenues from existing customers without simultaneously increasing your expenses.
I’ve already written on this one. So here’s what you do. Take another look at these six specific ways to treat new prospects if you want them want to stick around for the long haul.
Plus, you should periodically get feedback from your customers and act immediately and decisively after reviewing their input. You see…independent surveys prove your prospects read online reviews of your company before considering buying from you. So you’ll want to make sure you know what your current customers think of you. It’s a great way to improve your relationship with them.
Not only will you have more success cross-selling and upselling them, but they’ll write nice things about you while simultaneously driving new prospects to make their first purchase from you.
Makes for a simple, effective way to increase your CLV.
2. Reward purchases rather than offer discounts. You might think it’s a subtle difference. But a study done by Chubbies found using discounts to acquire customers lowered their lifetime value compared to those not acquired this way.
Truth is, other studies have proved discounts tend to decrease the perceived value of products and services, while free gifts promote quality and increase deal value.
Thus, marketers should replace discount promotions with a reward system that does a better job of grabbing and holding a customer’s attention for the long haul.
Free shipping on orders above a certain dollar amount…rewards that grow with every dollar spent…or an “extra” bonus gift with purchase are great examples that work to build perceived value in the eyes of today’s consumers.
But no matter what incentive scheme you choose, it’s important you choose rewards that compliment your brand…offer free product to encourage trials and cross-sells…communicate awareness of your rewards program…and make sure your rewards are achievable.
Choosing the right rewards system can increase your CLV by cementing customer loyalty and boosting long-term profitability.
3. Offer multiple options to connect. This is one of the easiest ways to increase customer lifetime value. Because based on a study by Harris Interactive, consumers have definitively indicated they much prefer to do business with companies who offer numerous ways to contact them for handling customer service inquiries or issues.
In fact, 56% of those polled said they would be at least somewhat likely to switch to another brand if offered more options to connect with them.
This means brand loyalty isn’t as “cemented” in the minds of consumers as businesses have been lead to believe. Or said another way, offering numerous, flexible customer service options is a MUCH better way to increase brand satisfaction among today’s consumers.
Whether it’s face-to-face, telephone, internet, or social media, customers will adore you when they can choose how to be contacted. So make it a point to use multiple social network tools to connect with and engage your customers when it’s convenient to them.
4. Use social proof to create enthusiasm. The easiest way to keep a customer coming back for more is to show them plenty of others are doing the same.
Make it obvious how many fans are reading your blog…following you on Facebook…or purchasing a specific product.
Get your most loyal customers to advocate for your brand by encouraging them to share product testimonials or good experiences they’ve had interacting with customer service, or your business in general.
Build excitement by encouraging your raving fans to comment on your blog posts or share your “stuff” with friends and family on social media.
The more enthusiasm you create for your brand, the more your new and existing customers will feel compelled to stick around for the long haul.
5. Use email marketing to drive repeat sales. Look, you know how hard it is to break though today’s email marketing “noise” and grab your reader’s attention…much less, get them to act.
But truth is, email marketing still outperforms every other marketing channel by returning more for every dollar spent on it.
So check out my previous post on how to talk respectfully to your readers in your email campaigns so they get excited about hearing from you and become loyal to you over time.
Now, don’t misunderstand. You don’t need to stop pursuing new customers in lieu of retaining existing ones. Just be sure to take the steps necessary to build loyalty in your customers. Especially those who already took the big step of trusting you enough to consider your solutions in the first place.
Doing so will increase customer lifetime value. And, boost your company’s long-term profitability.
Got some additional ways to increase customer lifetime value? Our readers would love to hear about them. Please share them with us in the comment section below.
About Jerry Bures
Jerry Bures is a direct-response web copywriter and marketing consultant. Since 2010, he has helped natural health, self-help and business opportunity clients—as well as local small businesses—become more visible, credible and profitable online.