“Good customers are an asset which, when well managed and served, will return a handsome lifetime income stream for the company.” – slideshare.net
Knowing customer lifetime value is important for any business since it determines the financial value a customer brings during their ‘lifetime’ with the company. When someone becomes a customer, they enter into a ‘relationship’ with the company and hence customer lifetime value would go beyond a single transaction or purchase. A long-term relationship therefore becomes more important and valuable than focusing on just the one deal. In addition, knowing customer lifetime value is not just about one customer either – it would encompass all the customers of the company. The knowledge of this ‘value’ allows a business to know that some customers stay longer than others do, some may return while others may leave for good. Whatever the case may be, the fact is that every customer has a ‘lifetime’ and each one has some financial importance and value for the company.
Knowing customer lifetime value is quintessential particularly from a customer service perspective and for any business. It helps service professionals to truly understand the value of each customer and know the cost of losing them. This ‘value’ helps businesses with decisions regarding customer service, developing products, sales, promotional and marketing activities. Without understanding what each customer is worth, a business would never be able to decide how much time, money, and other resources they need to spend to acquire and retain a customer. This lack of understanding could have detrimental effects on the bottom line and overall success and profitability of a company. For example – if the cost of acquiring a customer is about $150 but the customer’s lifetime value is only about $50, then the company would have a problem for sure. Knowing customer lifetime value allows a business to breakdown the expenses for each customer, thereby making better financial decisions with regard to acquisition and retention costs.
How exactly can a company get better at knowing customer lifetime value and putting in place the right and adequate amount of resources into each one? The first and most important step is focusing on building a long-term and strong relationship with each customer such that the length of their stay makes them profitable and loyal, thereby reducing the amount of resources required to retain them. Longer staying customers trust a company more easily, are more open to providing feedback and personal information, and have high satisfaction levels. These customers soon become brand advocates, attracting others to enter into long-term relationships with your company. Such customers deserve attention – through loyalty programs, rewards, incentives, discounts, and other such displays of gratitude. These attention giving acts cannot however, be used as an ‘umbrella’ policy for all long staying customers – they must be customized according to the specific needs and expectations of each customer.
A new customer would still be in a state of uncertainty and would not know what to expect from their association with a company. It is therefore, the onus of the company to ensure that the customer feels comfortable and would begin to think about a long-term relationship, thereby making it easier for your business to know their customer lifetime value. Ensure that your customer service teams keep in touch with them, the customers receive top class content, frequent updates regarding new or re-launched products, and overall work towards enhancing engagement levels. Customers soon come to realize that the company is dedicated and passionate about offering them the best and it would not rest until they can make their customers feel important and valued. Such realization and feelings motivate the customers to reciprocate by staying with the company and they will provide indications of their intentions – important for a company in assessing and knowing customer lifetime value.
For giving customers what they want, one-way communication would not suffice. It is important for a company to remain attentive and provide super-speedy responses to their queries and effective solutions to problems. Connecting with customers through the channel of their choice and ensuring that even the slightest hint of dissatisfaction is managed, will go a long way in helping a company and in knowing customer lifetime value. Invest in customer data management systems – such that customer records are constantly updated and ready to use when required, such that customer wait times are low and problem resolution is speedy.
For knowing customer lifetime value and understanding each customer, segmenting the customer base is a good idea. Customer segments can be made based on buying trends, value of past purchases, demographics, cost of acquisition and retention and other such specifics. Once a company is able to assess which customers are most valuable and more likely to become loyal, it would be easier to put together customized programs and incentive schemes to keep them attracted and engaged. The schemes and programs for still ‘unsure and shaky’ customers would need to be different – they would need to be enticing such that, these sets of customers gravitate towards becoming loyal and profitable.
By knowing customer lifetime value, a company would be able to predict customer satisfaction levels and ensure that they never drop but rather enhanced consistently. A drop in satisfaction levels would directly affect profitability and would increase the possibility of churn. We know that in the current market conditions, the already limited resources are becoming even scarcer given the increasing demand. By knowing customer lifetime value, a company would know how much and on which customers they would need to use their resources. The fact is that there is enough information and a sufficient number of tools and technology to know exactly how much one needs to spend on advertising and promotions. By knowing customer lifetime value, a company can choose a set of target groups, channels of communication, and even the kind of content that goes out, to gain the maximum value from each customer / segment.
Anyone in business understands that in the current scenario, the unique differentiator for any company is now its customer service. By understanding customers and the value they hold, a company can upgrade / alter its customer service to best suit the needs and expectations of their customers. While all customers must be treated with respect and empathy, it is obvious that customers with the highest lifetime value would get preferential treatment such as a dedicated customer service resource, round the clock service, and other such methods to keep their value high.
The other benefits of knowing customer lifetime value include knowing whether a customer may have suddenly become less valuable. This would enable a company to swing into action and set things right before a customer leaves or becomes extremely less profitable and valuable. Despite best efforts, there are times when customers leave, for a variety of reasons – some of whom may have been extremely valuable customers. However, to know whether the defected customers would be worth the effort and resources required to get them back, the first step would be to know their lifetime value when they were with the company. A high value then, and currently, would be the deciding factors to put in place a strategy to win them back and ensure that they never leave.
Of the many strategies and processes of a business, understanding and knowing customer lifetime value is perhaps the single most important one. Monitoring this value will help a company to not only retain highly profitable customers, but also manage their retention and marketing expenditures a lot more frugally.
