How to increase Customer Lifetime Value

Reading a recent article in the Harvard Business Review about Customer Lifetime Value, got me thinking about how we currently define Customer Lifetime Value (CLV) and how a rethink of CLV is needed.

Let’s start with the current definition of Customer Lifetime Value: it is the total revenue flowing from a customer over the entire relationship with that customer or put another way, it is a prediction of the net profit attributed to the entire future relationship with a customer.

What CLV therefore does is assist with the following:

  • acquisitions
  • advertising and marketing targeting
  • ROI
  • impact of management strategies
  • retention efforts
  • individual customer profitability

We commonly define valuable customers as those that buy more, pay more, are loyal to our brand and will definitely come back to us. Yes, these are valid points in defining valuable customers, but is this enough? Is it restrictive? Can we take it a step further?

So let’s try and redefine how we see the customer. Let us reposition our view of customers as value creating partners rather than value extraction targets. We create products and services based on what we think the customer needs instead of focusing on what the customer needs to increase THEIR lifetime value. Walk the path of long-term effective growth with your customer – invest in your customer’s lifetime value. A mouthful yes, but most definitely worth the consideration.

For example:

Your customer is in the insurance industry and has an APP for users to view benefits, review T&Cs of their policies and request broker meetings. Being a software company that specializes in Secure Encrypted Communications you identify the opportunity of working with your customer to enhance the current APP by providing additional services to the user via your readily available secure encrypted Instant messaging, file sharing and voice calling to a call center agent. Your customer thinks this is of great value as it increases the user interaction, but the customer wants the data stored and controlled locally for traceability, audibility and most importantly POPI compliance. You develop this added feature together with your customer and now you’ve just increased your customer’s lifetime value – Simple yet Effective.

Your customer now becomes more valuable to you for the following reasons:

  • they give you new ideas
  • they collaborate with you
  • they try your new products
  • they share data with you
  • they endorse your company verbally and through social media

Yes, cash flow and profit margins are key to growth for any business and therefore important CLV would be those customers that buy more and pay more. That said, I do however believe that a redefined Customer Lifetime Value based on the Customers’ needs executed through partnership and collaboration be embraced as a long term strategy for continued business growth.

In a nutshell, it’s not about me and my products, it’s about you and your business.