The 1 Critical Metric You Need To Plan Your Customer Experience Strategy
Every day, I talk with CEOs and executives at growing companies about their customer experience strategy. They’re often considering questions like: Should I outsource or not? What can I automate? How much should I spend on customer experience and customer support? The short answer: It depends on your Customer Lifetime Value, or CLV.
CLV measures the profit from one customer over the course of your relationship. It’s typically used to think about customer acquisition costs – the higher your CLV, the more you can spend on marketing, sales, branding and incentives. But CLV is also critical when you’re planning your strategy for customer experience and customer support.
Simply put, companies that have a high CLV can spend more than companies that don’t. Everyone can design a workable customer experience model, but the details of that model will vary based on your CLV.
Of course, not all customers are created equal. If you have a deep understanding of each customer’s value to your business, you can use that data to create a customized service experience.
How is CLV calculated?
You can find a lot of complicated formulas for CLV, but the simplest is just to calculate the average profit from a sale and multiply it by the number of sales per customer.
If you rely on one-off sales, you can use:
[Gross profit from one sale] x [average number of repeat purchases]
And if you have a recurring revenue model you can use:
[Gross profit from one customer, per month] x [total average contract length, in months]
Structuring customer service if your CLV is very high ($10,000+)
Business in this category are often enterprise software or service firms (e.g. consulting, financial services). You might have a small number of customers that each pay you hundreds of thousands of dollars per year.
Implications for your customer service strategy:
- Team Structure. An account management model – highly trained managers who each serve just a few clients at a time – works best. In addition, you likely have a separate customer experience (CX) and customer service team. The CX team works proactively to identify improvements, while the customer service team handles incoming user queries.
- Channels. Cover all channels – phone, email, chat, and social – with an emphasis on providing real-time support via phone and chat.
- Support Schedule. If you serve enterprise clients, the vast majority of your queries may come during the day, reducing the need for significant night and weekend support.
- Response Times: Your customers need a response within the day. Aim for 4 hours max on email.
- Location. You may want to co-locate your agents with your CX team and engineers, so you’re less likely to outsource, or use remote or international teams.
- Cost. Your customer service agents are specialists who are relatively highly paid ($50K+ if based in the U.S.).
- Automation. Each customer is too valuable to risk delivering a subpar automated service experience. If you use chatbots, make sure customers can easily transfer to a human.
Structuring customer service if your CLV is high ($1,000-$15,000):
High CLV businesses might include SaaS companies like HubSpot, which until recently charged $800/month for its most basic tier.
- Team Structure. An account management team should cover your highest-value customers, as well as a large customer support team to handle a large user base.
- Support Schedule. You may need evening and weekend coverage, but it depends on your business. It’s possible most queries will come in during the day.
- Response Times. Aim for 4 hours max on email.
- Location. Since you’ll be covering multiple channels with expanded hours, you’ll need a high number of agents. You’ll want to look at creative ways to expand your team, including outsourcing, remote agents and international agents.
- Cost. For domestic agents, you will most likely be able to offer lower starting salaries. Supplementing your team with international agents will also help lower your costs.
- Automation. Be wary of automation. If it reduces service levels, it could create a backlash.
Structuring customer service if your CLV is medium ($100-$1,000):
A good example of a medium CLV business would be an e-commerce company where a customer might spend a few hundred dollars a year.
- Team Structure. You’re focused on your customer support team. You likely don’t have a separate CX or account management team.
- Channels. You need solid email support with a good response time (under 24 hours at an absolute minimum, better if possible). You may want to offer live chat and phone support as well, though it depends on your business. You should also build a great online knowledge base, so customers can answer their own questions whenever possible.
- Support Schedule. Have solid coverage during the day, and then expand to nights and weekends as you have the budget.
- Response Times. 24 hours at the most on email (but under 12 hours is preferable).
- Location. Consider outsourcing, international agents and remote agents. You can hire domestic agents if you think it’ll be demanded by your customer base. You could also utilize a blended domestic/international team.
- Cost. You can reduce costs by relying on a heavily international team and/or hiring junior agents domestically.
- Automation. It’s fine to experiment with automation, but be wary. It may work well for certain issues or types of customers, but proceed with caution.
Structuring customer service if your CLV is low (<$100):
Companies in this category include software firms that utilize a freemium strategy.
- Structure. You have a customer support team. You don’t have a separate CX or account management team.
- Channels. Keep it cheap. Offer email support, but no phone or chat. Build online knowledge bases, user communities and forums that enable experienced users to help others for free.
- Support Schedule. It depends on your business. Since you’ll likely engage international agents, it’s fairly simple to offer overnight or 24/7 support. But it may not be necessary.
- Response Times. Aim for 24 hours. You may even be able to stretch response times beyond that, which generally isn’t advisable on any of the higher tiers.
- Location. You can lower costs by outsourcing to a low-cost international support service provider.
- Cost. Opt for overseas agents, except for the most sensitive or complex queries.
- Automation. Automate whatever you can.
These are general guidelines, and one size definitely won’t fit all. Furthermore, many companies have a combination of low, medium and high-value customers. You’ll need to consider the unique characteristics of your business to design a customer experience and customer service strategy that works for you – and your customers.
Catch up on the latest Summer Slump Series: Customer Success edition. We compiled the top CS content to help you get ahead and make you and your team as successful as possible.
The importance of customer lifetime value (CLV) can’t be overstated. If you want to increase your CLV, then you should start by investing in customer success.