Learning how to increase customer lifetime value is a critical part of successful small business planning. It helps leaders like you understand the impact of internal procedures and policies, as well as pinpoint where to invest in changes to boost retention and customer spending.
That’s why we’ve rounded up six need-to-know strategies that illustrate how to increase customer value for your business.
Understanding Customer Lifetime Value (CLV)
Before we explore how to increase CLV, let’s start with what “customer lifetime value” means.
Although you could calculate the LTV specific single buyer, the “customer” in CLV refers to either your average customer or the average customer within a specific cohort or segment. “Lifetime” is the span of time from the customer’s first purchase to their last purchase with you, and “value” is the total amount of money they spend over that span of time.
The reason why CLV is so important is that a long-term loyal customer spends more and costs you less. Consider that:
- Current customers account for 65% of the average company’s business
- The probability of a sale to an existing customer is 60-70% vs. 5-20% for a new customer
- Existing customers spend 31% more than new customers
Key strategies to increase customer lifetime value
Some CLV enhancement strategies can also be labeled as Good Business Practices. However, understanding how to increase customer lifetime value includes knowing the specific positive effect of taking core practices to the next level.
Enhancing customer experience
Good customer service is frequently touted as the main reason for brand loyalty. While a customer-facing building, website, or signage can be as appealing and inviting as possible, getting one rude or disinterested person on the line after you navigate an 800-number phone tree can sour a customer experience for life.
To that end, your customer experience goals should include:
- Building trust and rapport with customers
- Resolving issues and addressing concerns promptly
- Providing personalized assistance and solutions
- Customizing messages to product ownership, habits, and needs
Plus, a satisfied customer who has a positive experience isn’t just likely to stick around—they’re also more likely to sing your praises to their neighbors.
Implementing customer loyalty programs
Loyalty programs aren’t a new invention—they’ve been around since the 1800s with trading stamps. But today, they’re more popular than ever. Why?
Because they work. Consider:
- 72% of adults in the US belong to at least one loyalty program, and nine on average
- 77% of consumers stay loyal for 10+ years, going out of their way to buy from brands
- 70%+ of consumers are more likely to recommend brands with good loyalty programs
Think about your customer preferences and expectations, industry norms, and return on investment before selecting a loyalty program type (or mixing and matching for a hybrid approach). Examples include:
- Points for purchases and/or actions that can be redeemed for rewards
- Subscription programs that offer discounts/rewards for subscribing vs. one-off purchases
- Coalition or shared programs that combine multiple brands for bigger rewards
- Value-based programs that engage customers in contributing to causes or social goals
- Paid programs that offer benefits for sale, usually an annual fee for a package of benefits
- Tiered programs that categorize customers and reward levels by spending or engagement
Making your program effective is key, and 48% of consumers say they expect special treatment in exchange for being a loyal customer. To that end, best practices for loyalty programs include offering:
- Fast, simple sign-up
- Valuable and attainable rewards
- An omnichannel experience that connects multiple devices and platforms
- Excellent customer service and transparent information
Increasing customer engagement
There are certain brands that people believe are making the world a better place—and these brands outpace stock market returns by 134%. Why?
When you can enlist customers as partners, members, or friends (thereby increasing their engagement with your brand), they’ll often choose your products over convenience or price breaks.
To see similar returns, consider:
- Providing useful and easily available expertise
- Integrating values, kindness, or approachability into your brand persona
- Creating enjoyable, multiformat, shareable content
- Being available and responsive across multiple sites, platforms, and interactivity types
Fostering customer retention
A top strategy you’ll see when increasing customer lifetime value is retention efforts. That’s because:
- You can boost profits by 25-95% if you increase customer retention by just 5%
- A s 5-7 times costlier than customer retention
- Current customers are 50% more likely to try new products
Retention strategies and techniques start with a focus on communication, like:
- Clear digital communication with actionable links
- Customized and personalized content and communication via email or social media
- Two-way communication with feedback and follow-up
- Automated and/or easy-to-use renewals and re-orders
Additionally, it’s helpful to provide:
- Engaging and effective onboarding processes
- Instruction and support on maximizing product use
- Transparency and speed in resolving issues
- Intervention to low-use, at-risk customers
Advanced techniques for maximizing CLV
Once you understand the basics of customer experience and engagement, loyalty programs, and retention techniques, it’s time to explore advanced methods for increasing CLV.
Data-driven customer insights
Clean and thorough customer data provides businesses of all sizes with clear direction on how to identify, build, and retain high-value customers and increase CLV.
Good data, however, means connecting all points of customer contact and action through a robust, cloud-based customer relationship management (CRM) system that’s accessible (and correctly used) by all departments.
Slicing and dicing your customer data is also the engine to acquire multiple models and levels of CLV reporting:
- Historical for factual information using past data over various time periods
- Predictive modeling to project future CLV
- Machine learning application to run predictive possibilities with multiple factors
- Cohort analysis to track customer groups acquired during the same month
- Segmentation by demographics or buying behavior
By analyzing data through the lenses of specific time periods, customer types, campaign engagement, and service interactions, you can clearly see the effects of different business choices and behaviors.
Upselling and cross-selling strategies
Many CLV improvement strategies focus on the customer lifetime half of the equation, ensuring customers stick around as long as possible. The other approach to lifting your CLV is to increase customer value.
This can be done by:
- Upselling – Upgrading customers to more expensive products and/or directly related additional products. For example, if a customer is purchasing a basic bouquet of flowers, the flower shop can upsell by recommending a deluxe arrangement that includes a wider variety of flowers and additional decorative elements.
- Cross-selling – Presenting different products customers are apt to be interested in based on related needs or overlapping demographics. For instance, if a customer buys a grill, the company can cross-sell accessories such as a grill cover, premium charcoal, or a set of grilling tools.
Upselling can be a tricky process—you don’t want a high-pressure approach to irritate your customer, potentially detracting from their brand affinity, but you do want to ensure you’re not leaving money on the table.
To strike this balance, consider upselling in the following instances:
- When a higher price point has features that address customer needs or pain points
- When immediacy or specific benefits can save time or money for the customer
- By comparing product features during a shopping or check-out process
- After a purchase, with an upgrade offer
Cross-selling, on the other hand, isn’t about replacing one product with another or adding directly related products but about offering a separate, additional sale for complementary or aligned products that are known to satisfy your customers’ needs.
Tips for effective cross-selling include:
- Don’t detract from the primary purchase momentum
- For online retail, limit on-page cross-sell products to three
- For B2B sales, consider a separate cross-sell campaign or sales call
- Cross-sell limited-time, limited-stock, and clearance merchandise
- Limit your cross-sell total to 60% of the already-planned purchase
Measuring the impact of your CLV strategies
You can evaluate the impact of your strategies by measuring customer lifetime value changes over time, particularly when you:
- Drill down by cohort
- Segment by customer demographics and buying behavior
Learning how to increase customer value also includes understanding how to measure the strategies you apply.
Important KPIs (key performance indicators) that directly contribute to calculating CLV include:
- Average order value (AOV)
- Order frequency
- Customer lifespan (CL)
- Customer value
You’ll also want to track and measure:
- Customer acquisition cost (CAC)
- Lifetime value to customer acquisition cost ratio (LTV:CAC)
- Margin (either gross profit margin or net profit margin)
- Customer retention rate or CCR (which is not the same as repeat purchase rate)
- Customer churn rate
- Bounce rate
- Average days between transactions (ADBT)
- Cohort stickiness rate
Plus, consider these KPIs around customer service and satisfaction that greatly impact CLV:
- Net promoter score (NPS)
- Customer satisfaction score (CSAT)
- Customer effort score (CES)
- Time to first response
- Time to resolution, a.k.a. resolution time or mean time to resolution (MTTR)
To track these metrics, you’ll ideally need a CRM plugged into software that provides customizable CLV reports and tracking, such as Kissmetrics or ChartMogul. You can also create CLV reports using Google Analytics, your CRM, or even a spreadsheet program.
Grow your customer loyalty and build relationships with Nextdoor
By improving your customer experience, adding a customer loyalty program, increasing customer engagement, and employing proactive retention techniques, you can improve your customer lifespan. Not to mention, adding data analytics and cross- and up-selling practices can enhance your customer value to further boost your bottom line.
The effectiveness of these strategies is why Portland real estate agent Joe Kennedy cultivates relationships through Nextdoor—in turn, delivering excellent service.
If you’re interested in strengthening your customer lifespan and value, a Nextdoor Business Page can help. Connect with your customers through business posts and build trust using recommendations from members. Our comprehensive Nextdoor Ads Manager dashboard also makes it easy to set up and track Nextdoor ad campaigns with granular, effective targeting.
Sources:
- Forbes. Customer Retention Versus Customer Acquisition. https://www.forbes.com/sites/forbesbusinesscouncil/2022/12/12/customer-retention-versus-customer-acquisition/
- SmallBizGenius. 40 Amazing Customer Loyalty Statistics in 2024. https://www.smallbizgenius.net/by-the-numbers/customer-loyalty-statistics/
- Fit Small Business. 15 Cross-selling Tips & Techniques for Retailers. https://fitsmallbusiness.com/cross-selling-tips/
- MarketingProfs. Top 10 Loyalty Reward Program Best-Practices. https://www.marketingprofs.com/articles/2019/40682/top-10-loyalty-reward-program-best-practices
- Forbes Advisor. What Is Customer Lifetime Value (CLV). https://www.forbes.com/advisor/business/customer-lifetime-value/
- Omniconvert. 10 KPIs with a major impact on your Customer Lifetime Value. https://www.omniconvert.com/blog/10-kpis-major-impact-customer-lifetime-value/
