How Do You Increase Customer LTV
By increasing the lifetime value of your customers, you are increasing your profits, delivering greater value as customers stay longer or buy more, and making it easier to acquire customers, as you have larger margins.
In short, there is no downside to increasing your customer LTV. But how can you do it?
When you want to increase your LTV, the two most common questions you want to ask yourself are where are people leaving and why are they leaving.
That is where we will start.
Where are people leaving?
Where are people leaving is a simple question but it has various answers. To answer the question you must analyse all of the places in a lifecycle people stop being a customer and therefore their LTV stops increasing.
The best way to demonstrate this is with an example. For this scenario, we will analyse a B2B SaaS platform that offers free trials on their website and you can purchase plans on a monthly or annual basis.
When we list all of the places people stop being a customer, for our example company it might look something like this:
- People who leave after the free trial
- Paying Monthly – Stay 1 – 3 months
- Paying Monthly – Stay 4 – 9 months
- Paying Monthly – Stay 9 months to 1 year
- Paying Monthly – Stay over 1 year
- Paying Monthly – Stay 2+ years
- Paying Annually – Stay 1 year
- Paying Annually – Stay 2 years
- Paying Annually – Stay 3+ years
If you have customers who have been with you 3, 4, or 5+ years, you may have more categories than this.
By completing this step we are able to begin breaking down our customers into cohorts, where we can ask who they are and why they are leaving.
Why are people leaving?
When you know all of the places people are leaving we can investigate why. Investigating why people are leaving can be done in a number of ways.
Some of the most common tactics are:
- You can speak with people face to face or on the phone
- You can review your analytics
- You can include a question asking why people are leaving when they cancel
These are not all of the options available to you and you may also think of something different depending on your business. It doesn’t matter how you acquire this information, what is important is that you know why people are leaving.
By cross-referencing when people are leaving with why they are leaving you will start to notice trends occurring.
When you spot these trends write them down. Some examples we have seen are:
- Companies that leave after 1 year do so because they are growing and are looking for new functionality, which they didn’t know we offer or we don’t offer.
- Companies leave after one month when they have not implemented XYZ features of our product.
- Companies who don’t complete the trial because XYZ feature is not relevant to them but we know companies that use XYZ feature are most successful.
What can we improve?
Armed with this information, we are able to clearly identify all of the reasons people leave or churn from your business. It is now a question of what can you do about this.
It is a straightforward task to list out all of the steps you could take to reduce your churn and increase your LTV. What is most important is that you measure the impact of your efforts.
As an example, let’s say that people churn after one year because they are growing and need new features which you provide but you find out that people do not know this. So you begin implementing reviews after 6 and 9 months to make customers aware of how you can continue to help them as they grow.
It should then be possible for you to compare the cohorts of people before you begin running reviews and after running reviews, to see if the rate of churn or the rate at which people leave has reduced.
If the number reduces, you have directly increased the lifetime value of those customers.
This same process can be repeated for all of the reasons you have identified for people leaving.
Where do Marketing and Sales focus their efforts?
There is little to no point in acquiring customers who will not stick around for long. Yet this is something that almost all companies do. At first, it makes sense to do this as we are simply looking for customers who are willing to pay for our product or service.
However, as you begin to grow your customer base, it will naturally segment into different industries, different pain points, different sizes of companies, and different geographical locations, to name just a few of the variables.
Not all of these companies will feel their pain the same and as a result. Some will be more or less dependent on your solution, depending on the mix of variables.
This is not new or shocking information but as it pertains to the question of increasing LTV we must ask what are we going to do about it.
We can summarise this by asking – who are your best customers?
By best customers I mean they pay you the most, they stay a customer for the longest and they love what you do. When you have a list of them, what separates them from the rest of the pack?
- Are they all a similar size?
- Do they all have an internal champion in the same role?
- Do they all have a specific use case?
By identifying what your most valuable customers look like and clearly defining it, you can pass this information to your Marketing and Sales teams. In turn, you can place greater financial rewards for acquiring these types of customers.
Changing your focus in this way already puts you ahead of your competition by acquiring new customers who look like your best performing customers and as a result increasing the LTV of your customer base.
Can you expand on what you have?
Once you have gone through the difficult process of identifying the most common exit points, who these people are, and begin fixing these issues, there is another simple way to increase your LTV.
That is to sell more to your existing customers.
This is perhaps the most common way of increasing your lifetime value. You may wonder why we have waited until the end before mentioning it.
This should be the final thing that you do, because every step that we have taken until now has been designed around increasing the value your customer receives from your product and having them stay longer as a result.
You will find it much easier to sell new products or services to happy and engaged customers than you will if you try to implement this step first.
Increasing LTV is not a case of implementing fancy tricks or hidden tactics but a process of analysing the reasons that are limiting your lifetime value, and rectifying them.
Hopefully, this article has provided you with a structure that you can apply to your business, and measure the improvements to your LTV.
You can also learn more on how LTV works with your CAC calculation in Why is LTV/CAC Important