Acquiring new customers has been the most talked-about and common way to grow a product’s revenue. But here’s something that’s not fondly talked about — customer acquisition costs. These costs can be quite high based on the industry you operate in. And they aren’t decreasing, thanks to ever-increasing competition. What also needs to be brought to attention here is the fact that you don’t have an endlessly expanding audience you can sell to — which is why acquisition often slows down past a certain stage.
This is where improving customer retention and lifetime value (LTV) can help businesses like yours. Higher LTV would mean your existing customers would keep contributing to your sales revenue for longer (and/or higher ticket prices) to help you grow faster. In a survey, 98% of organizations were observed to consider customer lifetime value as an important or critical part of their marketing strategies. Low LTVs would restrict your growth and would require you to acquire more customers in order to meet your revenue goals.
Higher LTV and customer loyalty on the other hand, improves your Revenue Per User (RPU) and helps you grow sustainably over the long run. So how do you optimize your product to increase your customer loyalty and LTV?
Let’s explore the ways you can, over the following 10 steps and strategies.
10 Ways to Increase Customer LTV and Loyalty
1. Double down on outcomes
B2B businesses deeply care about the results and outcomes of their investments. When your product helps these businesses generate outcomes they’ve come to expect, and delivers on their expectations, they are likely to stick. They’ll keep using your product, so they can dependably generate the results and outcomes they originally set out to create or accomplish while they bought from you. These outcomes could revolve around solving procedural bottlenecks, technical complexities, automating, helping stay compliant, or growth.
Frame your core value propositions around these outcomes and results. It’ll help your teams focus on the right problems to solve over the long term, the ones that serve your customers the best, and keep them happy. This is key to having great NPS scores, building strong brands, and gaining referrals from your customers (more on that later). Your customer lifetime value is directly impacted by these metrics — they signal customer satisfaction and product value, which customers appreciate and stay for.
2. Price it right
As we discussed earlier, businesses that procure and invest in tools do so to generate certain outcomes. These outcomes are weighed against the costs of the product itself. Your customers’ approach towards evaluating your product’s cost should be factored in while pricing your product. Higher pricing drives potential customers away, and low prices make you lose out on better profitability and margins. Pricing the product low enough to attract a larger audience of customers can impact your LTV and bring in low intent customers who are likely to churn out earlier.
Which is why it’s recommended you have your pricing modeled on your ideal customer profile. Know the impact your product creates within your customers’ businesses, and price your product in a way that maximizes value for both you and your customers. Also, similarly featured products that are priced differently might not make for good comparisons or competition.
Customers might look at two products completely differently based on how they’re positioned and how reputable and trustworthy each of them is. Price your product for its strengths, mapped with your ideal customers’ problems and the scale to which they’ll pay to solve them.
3. Reward loyalty
One of the best ways to cultivate customer loyalty is to reward it. When you go out of your way to recognize users and clients that have been with you for longer — it promotes a sense of achievement and belonging. Loyalty, when rewarded, can be similar to a winning streak — your customers are less likely to break it. It also leaves them anticipating the next reward, something that will push them to stay for longer. These gifts or benefits need not cost much, but they should be of some significance to your customers. At scale, this practice might impact your margins by a bit, but over the long term, you would have retained more customers.
These rewards could include discounts, access to higher-tiered features, or your company merchandise and goodies. Offering extended product usage is another way to double down on the potential impact of your loyalty rewards, as it also pushes them to stay and use their rewards. This directly helps increase loyalty among customers and increases their value.
Neal Taparia who runs Spider-Solitaire-Challenge surprises his users with rewards. He says “For our most loyal users who come back regularly to play our Spider games, we’ll often give them a one-month premium subscription at no charge as a way to surprise and delight them. We find that they tend to continue their subscription, and refer friends to play our games.”
4. Focus on acquisition through referrals
Businesses spend a lot of time evaluating their purchases and procurements. This is done to ensure they’re spending on buying the right tools for the team and can make the most of their investments.
A lot of times, having an acquaintance recommend and vouch for the product can help save the time spent evaluating the product. Recommendations and referrals serve as social proof of the product are legitimate, effective, and valuable. As a consequence of being able to find and quickly onboard the product through referrals, customers might find it easier to adopt and stick to the product.
You can kickstart and promote referrals from existing customers by building them into the product. This can be done by having a system in place that rewards customers for their reviews and mentions of your product. Apart from that, you can also build a referral program that rewards both the referred and referring customers. This will help you acquire high intent customers, who stay around for longer and drive more value throughout their lifetime.
5. Serve and support customers well
There is no better growth hack than providing great customer support. Beats every other “feature” your product manager can build #growth
— Deepak Abbot (@deepakabbot) December 19, 2019
If you’re operating a complex product or service — customer support can be a huge differentiator when potential customers evaluate you. During their journeys, they’re likely to face problems and difficulties, and when those go unaddressed or aren’t solved satisfactorily, it may lead to churn.
On the flip side, effective and delightful customer support can make them stay, and justify their purchase solely on the fact your support team is always there to help. In continuation from our discussion on outcomes — support is one of the ways to enable and achieve those outcomes for your customers. This will directly affect your customer retention, and hence, LTV.
When setting up internal guidelines on your knowledge base for customer support operations, make sure to center them around accessibility and quick turnarounds. Your customers should be able to instantly get your attention towards their problems, and have them solved as soon as possible. Quick and easy access to support enables instant support resolutions, better customer experience, and higher LTVs.
6. Nurture relationship driven sales
Customers are increasingly bombarded with new products and marketing messages that might push them to give it a try. The very thought that leads them to try new products isn’t just in pursuit of a shiny new object — but also a need to replace something they aren’t completely happy with.
When not given enough attention, customers are likely not to communicate their concerns, feedback or objections with the product. This is where relationships in sales help — by bridging the gap between customer needs and expectations.
By developing a deeper relationship with your customers right from the time they start evaluating you, you’re making it easier for them to make a purchase decision and stick with you. Your customers want access to people over at your company — like millionaires have with their bankers, and it could make a sizable difference based on how they’re treated.
Ensure you have a sales team that’s qualifying each and every lead that comes your way. This will help you find the leads that need the most attention from your account executives, so they can be nurtured and closed on priority. Focus more on leads that want to start using your product immediately, work in large organizations, and might be leaning towards your product for certain needs. Building a relationship with these leads will not only help the sale go through smoothly and retain them for the longer term, but also collect quality feedback and suggestions.
7. Cover more ground with features
When your product doesn’t serve the same outcomes it did when your customers first bought it due to a lack of new features and updates, they’re compelled to look for better options. This would be true especially if your product serves a diverse market of different businesses with different needs.
As businesses are getting more efficient, your potential customers are looking for solutions that might help solve a bunch of related problems with your product, not just one. Use this as an opportunity to build a better, more valuable product for your customers. As a consequence of building more useful features, you’ll also be able to upsell these new features to them, which directly impacts the LTV.
To find and build these features, talk to your customers and ask for their feedback for potential improvements. Analyze competing products and their features — go through their reviews and look at their most and least attractive propositions. Also, be on the lookout for category-first features, the ones that might not have been adopted or created yet. Building those before anyone else will help you build on your brand and authority, indirectly helping retain customers for longer.
8. Make annual contracts the norm
Your customers might quite like the idea of smaller more frequent payment modes to pay for your product. This is because they don’t want to commit to the product over the longer term, unless they’re really sure of it. But leads that are comfortable with paying for annual subscriptions and contracts are very likely to make for high-value customers.
The reason being them having a budget good enough for annual contracts, and intend to use the product over the long run. These criteria are part of qualification frameworks like BANT — which are intended to help filter high-quality leads. Getting more customers to sign up for annual contracts would book revenue for an additional 3 quarters (increasing their LTV) and ensure they’re retained for a longer period.
To promote annual contracts among your customers, price them attractively. You don’t necessarily need to discount your annual pricing based on your current monthly plans if margins are of concern. You can simply revise monthly plans for new customers to be significantly higher than the effective monthly cost on annual contracts. You can also provide additional features and services to customers who choose annual contracts, to further add to an annual contract’s perceived value. This will push more customers to choose annual contracts over monthly ones.
9. Support cross-functionality and integrations
Like we discussed earlier regarding the addition of relevant features — similarly, integrations help extend the functionality of your product within other ecosystems. It’s likely your customers are using multiple tools as part of their operations.
Making your product compatible with other tools will help them onboard quicker, and build simple and efficient workflows involving your product along with their existing tools. This will make your product harder to replace, since workflows and processes are difficult to change. Hence, adding integrations within your product makes it stickier by enabling customers to get more out of your product, adding to their lifetime value and making them loyal.
Survey your high-value customers and find what other products they’re using. These need not be directly related or competing products — find the ones that could meaningfully add value for your customers if they were to be integrated with your product. Based on what products you’re integrating, you can make them part of your higher pricing tiers, and further boost your customer lifetime value.
10. Lower your churn
Throughout their journeys, a chunk of customers will come to terms with the fact that they aren’t realizing your product’s utility after using it for sometime. This can lead to them canceling their subscriptions, terminating contracts, or stopping their recurring payments. While this is natural for a business to face, it isn’t ideal.
High churn can severely impact your customer’s lifetime value if not taken care of. Unhealthy churn also lowers your net margins and revenue growth. Once your product is past the market-fit stage, most of the churn has to do with targeting and attracting the right audience. By attracting bad quality, low intent leads, you’ll have a harder time converting them into paying customers and retaining them for longer.
Zero down on your ideal customer profile (ICP) and find ways to attract and convert them. Monitor metrics like net promoter score (NPS) using NPS tools and engagement on core product features, to ensure your customers are happy and making the most out of your product. Follow benchmark metrics for your industry, and keep improving until your churn has gone below the industry standard. The lower your customer churn — the quicker the growth, along with higher customer loyalty and lifetime value.
Make your product stick, optimize referrals and churn
If your product provides the right solution to your customer’s pressing problems — it leads to a conversion or their first purchase. But to retain them for longer, your product needs to be sticky and engaging enough for your customers to stay and keep paying. Find the right features your customers will find valuable, and help them generate the outcomes they’ve come to expect. Optimize your product positioning and messaging to focus on these outcomes, and also enable your existing customers to refer new customers to you.
Referrals will help you find and convert high-value customers that are likely to stay longer and avoid churning early on. Combined, all these factors will enable both you and your customer to make the most out of the relationship, boosting your product’s loyalty and customer lifetime value. And if you want to take it one step further, you could consider expanding your referral partner network to an affiliate program that rewards not only your customers but also anyone who wants to benefit from referral sales.
Author Bio: Mehdi Hussen is the digital marketing manager at SalesHandy, a cold email outreach tool. He is passionate about helping B2B companies achieve organic growth and acquire new customers through data-driven content marketing. Mehdi writes about startup growth, digital marketing strategies, sales productivity, and remote work. You can follow him on Twitter or connect on LinkedIn.