How to increase your customer LTV: A practical guide
As a business owner, there are dozens of important metrics you need to both track and understand. From your net profit margin to sales revenue and retention, these critical metrics help you stay on track as you grow and scale your business. Not tracking the right metrics is a dangerous road to walk, as it can lead you to some unsuspected surprises throughout your business journey.
One of the most important metrics you’ll want to pay particular attention to relates to your customer lifetime value. This metric tells you what you can expect from an average customer over the course of your business relationship.
What is Customer Lifetime Value?
Customer lifetime value measures how much profit your customers will generate during their relationship with your business. This will allow you to make predictions such as how much your company is likely to grow in the future.
Customer LTV can help you design loyalty programs, and promotions, so that your investments bring you great returns in the long haul. And it’s also a very important metric to track because it will allow you to know how much you should be spending on advertising to bring in new customers.
Now, let’s dive into the nuts and bolts of how you can increase your customer LTV!
Offer great service and great customer experience
The first step comes down to offering great service and a great customer experience. Your customers come to you expecting that you’ll deliver on your value proposition and on the promise you made. They're also expecting to have a reasonable relationship with you during all the service encounters.
If you can provide a great service and a great customer experience by going beyond what they expect and beyond what your competitors are offering, you'll grow the customer lifetime value by increasing loyalty.
Always make sure to follow up with your customers and provide all the information they need during the whole service process. Welcome them when they start to work with you, keep them posted on the updates, and let them know where the product is if you have an eCommerce store. You need to do everything you can to give them the best possible experience.
By offering this great experience you’ll increase the probability of people wanting to continue to work with you. Your customer doesn't want to go through the pain of shopping for other providers, because it takes time, and can be difficult. So, if you provide a great experience, their path of least resistance is to continue working and buying from you.
Take advantage of mistakes to increase satisfaction
No matter how good your product or service is, sometimes mistakes will occur and you’ll need to deal with negative feedback. A customer that is coming to you to give negative feedback, is a HUGE asset. Yes, that’s right - an asset.
When that happens, they’re allowing you to repair the mistake and turn them into a raving fan of the brand. It’s an opportunity that you wouldn’t have if they didn’t come to you with the feedback.
For example, last month a company bought some workout supplements to gain muscle mass. They bought 3 supplements and one of them arrived opened with all the powder spilled into the box. They took a photo of it and emailed the sending company with the feedback.
In a matter of minutes, the latter ones responded saying that they were sending another one. Now the receiving company knows that they can trust this brand and recommend it.
When situations like that occur, the first step is to do everything you can to repair the mistake. Then, you can go one step further and offer something to make it up. It can be another product for free, or a discount on the next purchase, the options are many.
Automate Your Processes
You need to take advantage of technologies to help you to automate your processes. The biggest mistake a lot of businesses make is to get a visitor to their site, make them sign up to receive a lead magnet, but never follow up with these people.
Email marketing is a great way to keep in contact with your prospect and buyers. It allows us to nurture them by staying in touch with them every day or every couple of days. Today, there is a lot of different email marketing software that allows you to automate your email campaigns.
GoHighLevel is software that allows you to set up automated marketing campaigns to keep your customers engaged. It allows you to automate email marketing, Facebook messages, and even Whatsapp messages. Clickfunnels and Groovefunnels also allow you to automate your email marketing process. Click here to check out the comparison between this two software.
Email automation allows you to set up automated messages to stay in touch with your customers, build relationships with them, and sell your product and services. The cool thing is that you need to craft the email sequences only once, and every potential buyer that goes through your funnel will receive it.
You can build sequences for building relationships and selling to people who haven't bought from you yet. And you can build sequences for people who have already bought from you, to continue to grow the relationship and sell more expensive products.
Upsell, Cross Sell, and Downsell
Upsell, cross-sell and down-sell are mechanisms that will allow you to grow the lifetime value of your customers.
Upselling is the process of taking a buyer who already decided to buy your product or service and moving them up to either higher quality, a larger quantity, or a better combination of products and services.
Cross-sell means adding other products or services that naturally complement each other or that will improve or enhance the performance of the single product they’re going to buy. That can be other products that you normally sell or other products or services that you acquire from outside providers and package together.
If you know that buying one thing will not deliver the best outcome that is possible, you can add other products or services to the transaction. Or if you know that when they buy your product they will need to go out somewhere and buy other complementary products or services, you can make it easier for them and offer these new products in the same sale.
Downsell means someone will decide or you’ll decide for them that either they are not ready yet or that their budget is not adequate for the main product. In this case, you sell them a less expensive version. The goal is to help them and to start a relationship that you can develop and nurture.
Resell
Reselling is the process of selling them over, and over, and over again. If you have nothing more to sell, it’s a process of sourcing other products or services because you already have a customer that is willing to buy from you. You already spent money on finding them as a prospect and converting them into first-time buyers, so you need to take advantage of it.
If you don’t have other things to sell, it doesn't mean that you need to stop. You need to find other products or services that are appropriate and aligned with your products and services.
Affiliate marketing is a great way to do this. Affiliate marketing is when you sell other people's products or services and make a commission for every successful sale.
Referral Sell
Referral selling is one of the best opportunities you have to increase LTV and get new customers. If you deliver great value for your customers, they will be happy to refer their friends and family to you.
A referral-generated buyer buys quickly, negotiates less, buys more things, buys more combinations, buys more frequently, is more enjoyable to deal with, refers more people, and costs zero. So, what are you waiting for to make referrals a core part of your business?
As long as you deliver a product or service that preferably exceeds, but at least meets the promise you make, your clients will be satisfied, and they will love you. Then, all you need to do is give them a step-by-step way to go to their friends and family to refer them to you.
If you want to go one step further, you can offer incentives to them. You can offer discounts on the next purchases, services, or products for free, the options are many.
How to calculate your customer LTV
Customer lifetime value is the ultimate goal of retention marketing. So, it’s extremely important to understand how much each customer is worth.
The first step is working out what the average purchase is. If you have an eCommerce store you have a lot of products that you sell or if you have a service business you can also have different services that you sell. But what is the average that a client will spend?
So, you need to determine how much is the average purchase per client. Next, you need to figure out how much of these payments you can expect over the lifetime of your customer.
How many purchases will they make over the next few years? And over your relationship with them?
Do they need to buy it every month? Every six months? Every year? Or maybe you have a product that will be sold at just one time. So, here’s the formula to calculate customer LTV:
Purchase frequency x Average order value = Customer value.
Conclusion
Customer lifetime value is a key metric that you need to keep in mind to make effective decisions at your business. Today, you learned the importance of customer lifetime value, what exactly it is, how to calculate it, and 6 strategies on how to increase it:
- Offer great service and great customer experience
- Take advantage of mistakes to increase satisfaction
- Automate Your Processes
- Upsell, Cross Sell, and Downsell
- Resell
- Referral Sell