Customer lifetime value (CLV) or lifetime value (LTV) is super important for every SaaS business.
A high customer lifetime value means that your company can retain existing customers and deliver a fantastic customer experience.
As a SaaS Agency, we know how challenging it can be to boost your CLV. But we've got you covered. This blog explores lifetime value, how to calculate the average customer lifetime value and strategies to maximize this KPI.
What We'll Cover:
What is Customer Lifetime Value?
Customer lifetime value (CLV) is one of the key SaaS metrics. This benchmark measures a buyer's net profit to your business throughout their entire relationship with you.
Measuring this KPI reflects your most valuable and loyal users.
Think about it. You're not going to retain all your customers. SaaS businesses typically have a retention rate of 80 - 90%. While this is a high retention rate, SaaS providers are better off focusing on improving customer relationships with the buyers who are more likely to stay onboard than the 10 to 20% that won't.
How to Increase Your CLV in SaaS?
Now that you know how to calculate SaaS customer lifetime value and which factors impact this KPI, we can explore how to optimize the value a customer provides your business over their lifetime.
Deliver a Seamless Onboarding Experience
Your onboarding experience must be simple and supportive, as this is a new customer's first interaction with your business. A complex onboarding process with many steps and tools to configure will motivate your customers to consider your competitors. Your onboarding should also be interactive and personalized to different companies.
Here is how to establish a straightforward onboarding process:
- Reduce friction: Ensure minimal friction during onboarding. For instance, remove any extra steps or fields and make the process as direct as possible.
- Welcome users: Design an aesthetically pleasing welcome screen to keep users engaged in the onboarding process. Include a micro survey to understand what each user needs and tailor the onboarding.
- Personalize the process: Your micro survey will help you personalize your onboarding process for different customer segments.
- Use interactive walkthroughs: Interactive walkthroughs will keep your clients engaged throughout the process and teach them how to use your platform's features. Avoid a linear product tour because users click "Next" without understanding the functions.
Personalize Your Drip Campaign
Email marketing is one of the best marketing strategies for every industry, and SaaS is no different. SaaS providers can use drip campaigns to welcome new users and engage customers in product updates. This is also an opportunity to share resources and tutorials on using more complex features.
The most critical factor for SaaS drip campaigns is personalization. For instance, send users a welcome email from the founder, CEO, or a key member of your company and mention their business name. This will make every user feel important rather than just another conversion.
Analyze your drip campaign to improve your approach and understand how users respond. Conduct A/B testing and experiment with different content to determine the best strategy for your SaaS drip campaign.
Gain Feedback from Customers with the Highest CLV
The best approach to increasing your CLV is to gather feedback from customers with high lifetime values. Understanding what factors motivate these clients to work with your business for longer will help you develop informed strategies to optimize your overall CLV.
But it's not just about gaining customer feedback—it's about listening to them. Implement proactive monitoring to analyze customer data and gain complete visibility into buyers' feelings about your service and their experience. Use these insights to improve your offering and deliver a fantastic customer experience to boost CLV.
You can use these tactics to understand how customers feel about your service:
- Analyze customer reviews on social media
- Speak to clients directly about their experience
- Conduct surveys
Reduce Your Churn Rate
As we mentioned earlier, a low churn rate means fewer clients are unsubscribing from your service ﹣this leads to a higher CLV. SaaS companies have an average annual churn rate of 5%, yet you should ideally aim for 3%.
But how can you reduce your churn rate? Firstly, prioritizing customer experience is vital; the happier clients are with your service, the less likely they are to unsubscribe. However, there are many more factors to keep your churn rate low.
Here are a few strategies you can use to minimize churn rate:
- Understand why churn happens: Analyze why customers churn to pinpoint the root cause of the problem. Speak to past customers about their reasons for leaving, and ask clients this after deciding to end their relationship with your company. You can use many communication channels for this, such as email, SMS, and phone calls.
- Know which client segments to prioritize: Determine which client segments are more likely to churn and focus on retaining them. After understanding why customers churn, you're more likely to have insights into how to maintain relationships with these clients for a longer period.
- Pay attention to complaints: Whether your platform suffers from high volumes of complaints or you experience negative reviews here and there, pay attention to this. Understand what makes customers unhappy with your service and respond to these complaints. 83% of clients feel more loyal to a brand that solves complaints.
- Deliver better customer service: Keeping your churn low is all about keeping your customers happy. There is no better way to achieve this than by delivering exceptional service. Make it easy for customers to contact your business and receive support, provide a seamless onboarding experience and personalize your marketing tactics.
Build a Community
It's vital to build a community to keep your clients engaged. Your clients don't want to feel like another figure pushed through your sales funnel. Prioritize building and growing a community to keep customers connected to your brand and interested in your offerings.
Developing a customer community is also a fantastic way to gain social proof and user-generated content. A community setting also encourages your clients to offer each other support, opinions, and advice when using your platform. This eases the load on your support team and makes your clients feel a part of something bigger than just purchasing a service.
Over 77% of customers are more likely to purchase because of an online community. Marketers also see the value in this approach, with over 68% prioritizing community-building.
SaaS providers can build a customer community in these ways:
- Define community goals: First, understand what your business wants to gain by building a community. This will help you evaluate its performance and guide you in investing in the right resources. Common goals are improving customer loyalty, brand awareness and sharing industry and product knowledge.
- Select a platform: Choose a platform that aligns with your community goals and helps you reach your target audience. Many platforms are available, including Facebook, LinkedIn, Discord and Slack.
- Create a dedicated landing page: Design a SaaS landing page where users can join your community. A dedicated page will make your community more discoverable, and you can leverage content like social proof to encourage users.
- Host a members-only webinar: To grow your community and keep customers engaged, host webinars that only members can access. Use these webinars to avoid knowing how to use your platform features and announce new updates and products.
What Factors Affect Customer Lifetime Value?
Several factors impact customer lifetime value, including your product or business model, discounts, and price range.
Here is how these components influence SaaS customer lifetime value.
Business or Product Model
SaaS providers offering products that can support their customers for a longer period are likely to have a higher CLV.
However, if customers aren't likely to need your solution after a specific time or task completion, you risk a lower CLV. Consider how you can improve your service to offer clients more value over a longer time.
Discounts
Discounts may sound positive, but this can threaten your CLV. Research shows that discounts can lower your CLV by 30% because they appeal to price-sensitive customers who are unwilling to pay the full price for your service.
These clients will have a higher churn rate once they can't afford your platform without a discount.
Price Range
If you offer different price points to accommodate different customers, you need to segment them based on their price and calculate the CLV for each segment.
How much you charge for different subscriptions determines how long a customer will work with your company. If clients don't find value for money in your offerings, this will impact CLV.
The Role of SEO in Increasing Customer Value
SaaS SEO strategies can help boost your CLV by gaining insights into your audience and producing high-quality content. SEO research will help you define your target audience by discovering ideal users' questions about your service and industry.
These insights will also reveal your audience's pain points. SaaS companies can leverage SEO research to optimize CLV in many ways. For one, you can personalize marketing and sales content to address your ideal user's pain points and provide them with the information they need to understand your platform.
The more information you have about your target users, the easier it will be to create personalized content that engages and informs them. Check out our blog for valuable insights into leveraging SEO and maximizing LTV.
How to Calculate CLV for SaaS?
Calculating your CLV is simple. But there are two ways to do this. You can calculate the CLV for individual customers and determine how much value each buyer delivers to your business.
On the other hand, you can calculate your business's average to understand the overall value of your customer base.
Here are the two ways to calculate customer lifetime value:
1. CLV Per Customer: Add the client's monthly revenue and multiply this by the total number of months the customer has worked with your business.
2. Average Business CLV: Divide the average revenue for each user by your churn rate.
Once you understand both these values, you can make informed decisions and design strategies to improve the value you deliver to your clients and keep them engaged in your products.
How Does Churn Rate Affect CLV?
Another critical SaaS metric to measure alongside CLV is your churn rate. Your churn rate describes how many clients cancel their recurring subscriptions.
In other words, your churn rate and CLV are directly correlated. A low churn rate means clients stay with you longer, which will produce more value for your business.
How Does Customer Acquisition Cost Affect CLV?
Your customer acquisition cost (CAC) describes how much it costs to acquire each customer. The value a customer provides to your business﹣your CLV﹣must is higher than the cost of acquiring that client.
Otherwise, this means you are spending more money acquiring users than you profit from them, and your business is running at a loss.
Increase Customer Lifetime Value for a Higher Average Revenue
Customer lifetime value (LTV) is a critical metric to measure. This KPI reveals how well your SaaS business can maintain a long-lasting client relationship and maximize revenue over each customer's lifetime.
To increase your CLV, you must deliver a seamless onboarding experience, personalize your drip campaign, and gather client feedback. SaaS providers should also reduce their churn rates and focus on building a thriving community.
Want to boost your CLV today? Reach out to MADX Digital and we can help you build an SEO strategy.
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