Undoubtedly, customer lifetime value (CLV) is a core success metric for any SaaS company. If your company is going to continue to grow – and remain profitable – you need to be able to consistently identify your most valuable customers and increase their value over the life of their subscriptions. Clearly, determining and improving your CLV is a crucial business activity.
But, improving your CLV is not a simple process. In fact, it requires a very specific setup of your marketing and sales operations to succeed on a consistent basis. Here are three capabilities that a SaaS or digital services company needs to have increase customer lifetime value.
1. Effective Engagement Tracking
First, an ideal way to increase your customers’ value to your business is being able to track just how engaged they are with your SaaS or service solution. Ideally, this tracking begins before a lead even turns into a subscriber: A trial user who logs in at least once a day, for example, will be more likely to become an active and engaged subscriber than one who only logged in twice during the 30-day trial.
Subscriber engagement matters because it’s a relatively reliable indicator of how satisfied your subscribers are with your software. Naturally, more satisfied customers will stay on for longer and might be open to add-ons (more on that below). Tracking that engagement enables you to target your marketing and sales efforts toward the type of subscriber who will be most likely to provide maximum CLV — and also try to increase engagement with other subscribers who may not be as active.
2. Cross-Selling and Upselling Opportunities
How you manage your individual subscription and software capability levels also plays a crucial part in determining and maximizing your CLV. If your users only have one subscription to choose from, even the most satisfied subscribers will provide the same value over time as users who are on the edge, and the only variable to determine your CLV will be your churn rate.
Any business owner knows that having your revenue depend on a single variable is a dangerous game. That’s why, when possible, you should build your online solution in a tiered subscription system that enables users to begin their subscription at a relatively low level and move up as the need arises.
Doing so will accomplish two things: first, you will increase your revenue by attracting additional subscribers who may only be interested in the lower tier to begin with. And second, you give your satisfied customers the opportunity to jump to the next tier and add features to their software or service that will increase revenue gain from them over the lifetime of their subscription.
3. A Contingency Plan
Finally, you also need a contingency plan in place for the inevitable situation in which your subscribers are ready to jump to an alternative solution. Even using a tiered subscription system with cross-sell and upsell opportunities as described above, your churn rate will be an important variable in determining your average CLV. And you can significantly decrease your churn rate by having a contingency plan in place once you become aware of an unhappy subscriber.
The exact nature of that contingency plan may take on many forms. You could, for example, offer discount pricing to unhappy subscribers who are ready to churn. But the best contingency plans are proactive, assuring current subscribers of your value proposition via consistent messaging and actively listening to them (via surveys and customer service) to spot and fix issues with your software before they become serious issues.
Make sure your customer success team members are all on the same page about how to handle common concerns that make subscribers jump ship. While it’s true that your solution may not be right for every single subscriber, it’s also true that many subscribers just need some guidance to get your software to work perfectly for them.
Maximizing customer lifetime value is a major focus of SaaS companies selling subscription software online, and increasing CLV is a complex process that won’t happen overnight. Effective engagement tracking, cross-selling and upselling opportunities, and a contingency plan to reduce churn are proven success measures to make sure your CLV is as good as it can be. With these capabilities in place, you’ll maximize your CLV and ultimately your revenue.
To learn more about customer retention read our Whitepaper: Go Beyond Retention.
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