In simple terms CLV is the revenue obtained from the customer less the costs incurred towards servicing the customer during the entire tenure. The longer the duration customer stays, the higher will be the CLV. Organizations therefore need to understand how critical it is to retain their high-valued customers and avoid potential loss of revenues due to churn.
At the same time, they need to ensure what plan / strategy needs to be in place to build a close equation with their customers thereby increasing their CLV and avoid losing them to competition. Let us understand the mandatory steps to be followed to achieve the goal:
Know your customers well:
Many times, we are oblivious to the knowledge we possess about our customers. To know them well, we need to deep dive and find answers to the following:
- Who are your high-value / strategic customers ?
- What motivates them to invest more ?
- What is the best time to reach out to them ?
- Which communication channels are most effective ?
- What products / services will they buy and why ?
- Are they satisfied with the service they receive ? What can be done to improvise the same ?
- Why and under what circumstances are they likely to leave ?
Information on the above will definitely help us control attrition, create the much-needed value to differentiate ourselves from others.
Gather customer data:
Besides demographics, it is always good to have complete analysis about your customers on a periodical basis:
- Who are the loyal customers that consistently give us business ?
- Total Revenues, Avg. Transaction Value (ATV), Annual Contract Value (ACV) etc. ?
- Revenue Comparisons – Monthly / Quarterly / Yearly as appropriate to understand positive and negative trends ?
- New Customers / Logos added compared to the same period last year ?
- Gross Margins / Net Margins to determine the profitability ?
- Investments / Acquisition costs – could be in the form of Campaigns, POCs, Roadshows, Events, Advertisements, Hiring, Training, Travel etc. ?
Plan / Strategize:
The essential next step is to plan well based on the information acquired:
- Target Industries / Services that are more profitable
- Named Accounts / Must-have Accounts & their prioritization
- Cross-sell / Up-sell opportunities
- Flexible Pricing structure & model – best suited based on Regions / Countries handled
- Retention strategies / Customer success managers
- Continuous improvements leading to enhanced customer satisfaction
- Increase bench strength
- New offerings / IPs / Managed Services etc.
- Aim for big-ticket accounts that give recurring revenues YOY
Execute:
Execution of a clearly thought-out plan leads to increase in the CLV. All this while controlling costs, setting up a pricing model to optimize CLV not maximizing revenues.
In summary, CLV is all about managing your customers well, keeping them glued to your organization by not only providing value but also extracting enough value from them. It involves gaining customer intelligence and building a strategy to understand their priorities and help them meet their goals throughout their lifecycle !