To Boost Your Customer Lifetime Value, Make This 1 Critical Investment
For a business to be profitable, it must offset its business costs with the lifetime value of its customers. While multiple factors inform a customer’s lifetime value (CLV), none of them are quite as essential as customer success. Customer success is the foundation businesses can build their continued success on top of.
Without a serious investment in your company’s customer success, your customers will inevitably grow frustrated with the customer experience. As a result, they will slowly, but surely, drift away from your company’s offerings in favor of an alternative that will provide them with the personalized experience they’re looking for.
What is Customer Lifetime Value?
CLV measures the amount of profit a company earns from a single customer over the course of their relationship. Typically, companies use it to determine their customer acquisition strategy—the higher your CLV is, for example, the more you can feel comfortable spending on marketing, sales, branding and incentives.
However, CLV is also critical for planning your customer experience and CS strategy. And providing exceptional customer service can increase your CLV as well, creating a positive feedback loop that will benefit your company for years to come. A higher CLV enables you to invest more in customer success, which increases your CLV.
How does customer success drive CLV?
If you’re hoping to boost your customer lifetime value, then here are just a few (of the many) reasons why customer success is the single most critical investment you can make to increase your customer lifetime value.
1. Customer success drives customer acquisition
Most U.S. adults want to do business with businesses that can offer consistent customer success both online and offline. Where bad service drives customers to talk about your company negatively, excellent customer success will encourage your customers to talk about your business and its services positively.
To illustrate this fact, consider the results of a recent study that surveyed a representative sample of 15,000 people from 12 countries:
- 43% of all consumers would pay more for greater convenience.
- 42% would pay more for a friendly, welcoming experience.
- And among U.S. customers, 65% find a positive experience with a brand to be more influential than great advertising.
This paints a pretty clear picture that, when it comes down to it, a large percentage of American consumers are looking for businesses that prioritize the customer experience. If you can provide an exceptional customer service experience to each new prospect you interact with, then the chances of that prospect coming back to your company as a customer will skyrocket.
For example, consider how Shopify explains the ways that customer success “can turn a customer question into a sale or a customer complaint into a resolution,” regardless of where that customer is coming from.
The point is, the more people you can convert into paying customers, the higher your CLV will become, and the higher your CLV is, the easier it will be for you to devote resources to your customer success team and keep the acquisition cycle going.
2. Customer success drives customer retention
According to a report from Frederick Reichheld of Bain & Company, even “a 5% increase in customer retention produces more than a 25% increase in profit.” With a profit margin like that, you can see why it’s so necessary that you continue to nurture and delight a customer even after they’ve done business with you.
The higher the quality of your service, the more loyal your customers will become. Shopify also says that, in a lot of cases, “an effectively resolved complaint or problem can turn an unhappy customer into a loyal, repeat customer.” If you can turn a negative experience into a positive one, you’ll not only increase customer loyalty but also make it easier for them to tell others about your company.
This will send new leads your way, allowing you to acquire new customers, repeat the customer service process, and ultimately improve your CLV even further.
3. Customer success drives customer spending
If you’re looking for a way to maximize your business’ CLV, then you need to commit to your customer success team. When you invest in your CS team—whether they’re an in-house or outsourced team—you’re effectively investing in your customers. And the more you emphasize the quality of your customer experience, the more willing they’ll be to do business with you.
Earning a customer’s business is one thing. Earning a customer’s repeated business is another thing, and showing your customers that you’re invested in the quality of their experience will encourage them to spend more on the services and products you offer. Increasing customer spend is the kind of reward that not only amplifies your company’s CLV but also helps keep your expenses low and profits high.
As healthy companies continue to grow it becomes harder to do so at the same rate through new logo acquisition. Companies spend an inordinate amount of effort on labor-intensive adoption and reactive, renewal processes with little or no regard to creating a disciplined expansion strategy. It’s time to change your strategy. It’s time for Customer Success 2.0.
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.