With marketers under more pressure to prove the value of their programs, metrics are taking on increasing significance. For SaaS marketers, one of the most important metric is the one that measures Customer Lifetime Value (CLV). CLV predicts the value of revenue that you’ll receive from a customer over his lifetime. Once you know that value, you know how much you should spend on marketing and customer acquisition . Determining CLV is especially critical to SaaS providers, because of the complexities in determining customer acquisition costs from, for example, freemium models and variable subscription rates.
There are several different ways to calculate CLV, but the key information that you’ll need is your customer churn rate. Your customer churn rate is the amount of revenue that is lost from customers leaving, divided by the total revenue earned during a period.
Here’s how to calculate your churn rate. Pick a month, and add up all of your new and existing customers. Then, determine the number of customers that churned during the same period. Now, simply divide the number of churned customers by the total of new and existing customers. This is your churn rate.
In addition to the churn rate, you’ll also need to know your know your average customer lifespan, retention rate, and profit margin. Once you have all the data, you can plug it into a formula like this one to calculate your CLV.
Knowing your CLV will help you determine how much to spend on customer acquisition, but if you notice a high churn rate, or a low customer-retention rate, you can also use this information to address possible problem areas.
The bottom line — increasing your CLV directly affects the value of your company. Once you have information about churn rate and CLV, you can work to improve it.
Here are five tips to boost your SaaS company’s CLV:
- Customers & Technology. Innovative technology is important to the success of your business. However, focus on solving your customers’ problems, not wowing them with cutting-edge features. “Most prospects are not yet ready to hear about the solution. They first need to learn more about the problem,” said SaaS marketing expert Peter Cohen. To build loyalty and increase CLV, customers need to understand their problems and how your product solves them. This is not to say that you shouldn’t promote new features to existing customers. However, promote them from the standpoint of how the new features contribute to solving their problems.
- Stand out from the crowd. Competition is fierce. Even if you have a truly unique app or idea, it will not be long before someone else develops a similar product. The key to keeping your customers is continuing to develop and improve your product so that it is truly unique. Stand out in simple things like customer service, stable applications with few bugs, easy-to-find online support, and an intuitive design. Price is important, but focus more on competing with your quality of service.
- Let them get to know you. Customers love a good story. Loyalty comes from feeling like you are part of something great. Use an effective content marketing strategy to help your existing customers get to know you. Use blogs, social media, customer forums and newsletters to share your story, introduce your staff, and tell your customers what you are passionate about. Let them know what you are doing to leave less of an environmental footprint or what charities your company supports. Use your blog to comment on industry trends. Writing in the first person will make your customers feel like they are getting advice from an expert in their industry. Become their personal and trusted advisor.
- Don’t assume they are happy. Just because you haven’t received a complaint, doesn’t mean your customers are happy and that they see the value in your product. Proactively engage your customers through email, social media, online support, or customer forums. Provide a platform for your customers to learn from others in their industry. However, balance that advice with tips from customer reps as well. Regularly monitor the posts to look for opportunities to engage them further. Make engagement simple and intuitive. Make them feel like you are ready to solve their problems.
- Solicit feedback. Nothing builds loyalty like feeling like your opinion is valued. Solicit feedback about your product. Any time a user contacts customer service, ask them how the experience went. Was their problem solved? Ask customers who discontinue their service why they did so. Their feedback will help you prevent the same from happening to other customers. Your sincere inquiry may move that client to take a second look at your company. Collect the feedback via your customer’s preferred method of communication. If they prefer a phone call, take the time to give them a call.
Boosting your CLV will build customer loyalty, increase revenue, and put you in a better position to project company profitability . Take advantage of this valuable metric by focusing on an effective CLV strategy. It is particularly important for SaaS companies to develop goals for raising CLV and measuring the success of those goals.
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