Top 3 Initiatives to increase Customer Lifetime Value

Shyam HN
March 23, 2022
Customer Lifetime Value

Lessons from the modern Customer Success leaders’ playbook

One of the best parts of my job is the opportunity to speak with several revenue leaders and get to know their strategies and approaches to remain ahead of the market. More often than not, it’s very easy to distinguish the more progressive, forward-thinking experts from others. These leaders are driving (as opposed to following) the transformations in their functional area, they are risk-takers and obsessed with developing the center of excellence for their functions. This also creates a powerful magnetic force to get some of the best minds in the field to work for them, thus creating a powerful flywheel effect. 

Customer Success Managers are no different. Because it’s a relatively young function, it offers greater room for innovating with new ideas and disrupting the status quo. Many Customer Success organizations were created in the last 5-10 years as extensions of the Support team and had a passive, on-demand approach to customer engagement. Most of this time was also used to arrive at a generally acceptable job description, success metrics, organization structure, etc. From a technology point of view, there are three specific categories of tools that came about in this period - i) Gainsight and others who created a CRM for Customer Success (this category is clearly established), ii) Broader set of Customer Support, and engagement tools like Zendesk and Freshworks that got into the Customer Success gamut, and iii) other point solutions for NPS/survey, Customer Communication, Product Analytics, etc. 

The role and relevance of Customer Success organizations are undergoing a massive transformation now, led by the kind of leaders I described above. They are becoming strategic partners in customer engagement and the company’s business growth strategy. Most of these Customer Success leaders have started articulating their role in terms of customer value and growth, in addition to prevention of churn (the conventional metric). They prescribe a proactive approach to customer engagement and insist on driving these discussions from a customer value standpoint and less so from features and usage alone. They are also early adopters of creative ways of using technology to address some of these challenges and elevate the relevance of their organization to the business. (Speak to us to learn more about this)

What is Customer Lifetime Value?

Customer lifetime value (CLV) is a measure of the total worth of a customer to a business over the entire duration of the customer's relationship with the business. It is an estimate of the total amount of money a customer will spend on a company's products or services, and takes into account the customer's purchase frequency, the average order value, and the length of the customer's relationship with the company.

How is Customer Lifetime Value important for business?

Customer lifetime value (CLV) is important for businesses in several ways:

  1. Helps prioritize customer acquisition and retention efforts: By calculating CLV, businesses can identify high-value customers who are worth investing in for long-term growth. This helps businesses prioritize their customer acquisition and retention efforts, and allocate resources accordingly.
  2. Provides insights into customer behavior: CLV can provide insights into customer behavior and preferences. By analyzing customer purchase history and behavior, businesses can identify patterns and trends that can inform their marketing and sales strategies.
  3. Guides pricing and product decisions: CLV can help businesses determine the optimal pricing and product mix to maximize customer value. By understanding the value that customers bring over their lifetime, businesses can make informed decisions about how to price their products or services and what products to offer.
  4. Drives profitability: Maximizing CLV is key to driving profitability for a business. By focusing on high-value customers and keeping them engaged and satisfied, businesses can increase their revenue and reduce their customer acquisition costs.

How to improve Customer Lifetime Value?

Here are the top three initiatives I have repeatedly come across while discussing the priorities of these progressive Customer Success leaders.

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Initiative 1: Move from Activities to Outcomes

The forward-thinking Customer Success leaders recognize the single biggest superpower they have, compared to any other revenue function - the ability to demonstrate tangible results for customers! Anyone who’s played a team sport or something similar will tell you that the kind of trust and friendships that gets formed in their shared journey outlives the journey itself. This is the opportunity that Customer Success teams can tap into - to associate themselves as an integral part of their Customer team that’s striving towards the business outcomes they support. This creates the trust that forms the foundation for building and growing the relationship across the customer’s lifetime. 

This means practically building the confidence, skills, and tools that enable Customer Success teams to have a transparent discussion with their customers at the time of onboarding (or even in the sales process) about the business outcomes they are looking to drive and by when. This ensures that the quality of every Customer-CSM interaction is elevated to discuss these outcomes and the progress along the path to get there, rather than the minutiae of activities. This brings us to the second initiative.

Customer Lifetime Value image 1

Initiative 2: Move from Quarterly to Continuous Business Reviews

One of the most significant gaps in today’s customer engagement playbook is that outcome and ROI-related discussions only happen once a quarter. As any product expert would say, that’s nowhere close to the kind of frequency which drives sustainable behavior change. It’s this realization that is pushing modern Customer Success leaders to gravitate towards Continuous Business Reviews. This approach aims to replace the episodic QBRs and their PPTs made on the previous night and I-don’t-remember-what-we-spoke-last-time discussions with a continuous, collaborative, agile approach to identifying and delivering on customer value. This drives mutual accountability and replaces subjectivity with analytics and data-driven decisions.

Customer Success leaders who drive this initiative invest in training and technology to help this radical transformation. Training their teams on how to have those customer-value-oriented conversations and then giving them a single system of truth to work with their customers on. This means the Customer Success teams have the opportunity to hold their customers accountable for their part as well and work closely with them to course-correct at the first sign of deviation from the plan. Such an approach secures the probability of incontestable value creation, which provides the opening for growing customer accounts. This brings us to the third initiative. 

Customer Lifetime Value image 2

Illustration source:

Initiative 3: Move from Fragmented to Connected Customer Engagement

Today, most companies operate marketing, sales, and customer success functions in silos. This is a major lost opportunity in the subscription business because expansion and growth are where the majority of Customer Lifetime Value (CLTV) lies. Customer Success leaders on the bleeding edge of this business model insist on being an active part of the account team and, to some extent, also being the connector across marketing and sales when it comes to a customer. At the time of expansions and contract negotiations, the amount of customer context and trust that the Customer Success team brings puts the company on a never-before pedestal to grow the account on the basis of incontestable customer value delivered. 

The key component of this initiative is to move from a transactional focus to an account focus. This calls for looking at the customer accounts and their business objectives holistically and creating a culture of customer-centric collaboration within the company. Customer Success teams are best placed to drive this initiative as a bridge across internal teams as well as the customers. It will go a long way if these companies augment their CRM implementation with a collaborative layer that can cut across these siloed functions and bring them together around customer outcomes.

Customer Lifetime Value image 3

While these initiatives seem fairly straightforward, they are also quite transformative with outsized business impact. Driving this change will need strong conviction from the leadership team and also the right set of tools and technology to drive the new behavior. But this is definitely the way to go. 

All markets are exploding with new vendors, and switching costs are at an all-time low. This means that any B2B company that aspires to build and grow meaningful customer relationships and develop customers-for-life must start focusing on the Customer Lifetime Value (instead of disjointed transactions) and doing so while helping their CSMs get on their Customer’s speed dial! 

Customer Lifetime Value image 4

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