Understanding Customer Lifetime Value Can Lead To Customer Project Approval

Are They In For The Long Haul: How Understanding Customer Lifetime Value Can Lead To Customer Project Approval

Last week we were conducting a session with one of our group consulting client cohorts and discussing the amount of effort sometimes required to convince others in the senior leadership team that focusing on improving the customer experience will drive improved business outcomes.

One thing that everyone unanimously agreed with is that even the most hardened senior executives respond to a plan that proposes a pathway towards more revenue. What a lot of these high-level authorities do not realise is that customer experience is a project worth investing in because increased customer satisfaction directly translates into greater customer loyalty, increased customer base, and overall business and revenue growth.

When it comes to allocating budget for customer-facing projects, understanding customer lifetime value (CLV) is essential. That's because CLV is a key metric that can help you determine how much money a customer is likely to spend with your company throughout their relationship.

What is Customer Lifetime Value?

CLV is a customer-based metric that takes into account both the revenue that a customer brings in as well as the potential future revenue from that customer. This number can be used to make important business decisions, such as how much to spend on acquiring new customers and how much to invest in keeping existing customers satisfied.

customer lifetime value decisions

It helps you make important business decisions about sales, marketing, product development and customer support. For example:

How to Calculate your Customer Lifetime Value

As mentioned earlier above, the customer lifetime value is how much money a customer will bring your brand throughout their entire time as a paying customer. Calculating your CLV is simple! The formula is as follows:

CLV = Actual Total Spend to Date + (NPV of expected future spend x years loyalty)

Calculating customer lifetime value

It’s been called the most important metric for your business and with good reason. It’s also one of the more underappreciated, perhaps because many brands struggle to properly define and calculate it.

When you truly understand the value of your longer-term customers, it becomes far easier to convince senior leadership of any investment.

Which Customer Experience Projects Should be Given Priority?

Once you come to understand the importance of investing in a positive customer experience, the next step is to understand exactly which projects should be given priority.

When it comes to evaluating customer experience projects, those that are most likely to improve Customer lifetime value should be given priority. This is because such projects have the potential to create long-term value for the company by improving customer loyalty.

Qualitative data from market research can also help understand how customers feel about their experiences. This type of data can help to identify customer pain points and areas where the company can improve.

Digital transformation is another area where customer lifetime value comes into play. By understanding how customers interact with your digital channels, you can make improvements that lead to increased satisfaction and loyalty.

What are some other benefits of customer lifetime value?

In addition to the above, several other benefits come from understanding and improving customer lifetime value. These include:

How to pitch customer experience projects

One method employees have successfully used is to start by asking their colleagues if they would like to get on the green line sooner? Automatically, their colleagues respond with “Yes, of course, how will you do that?

Guide to address customer needs

This opens the doors to discuss the importance of investing in qualitative research methods which will pave a way for structuring a customer journey map. The customer experience framework will have a customer focus and will specifically address the pain points of existing customers and potential customers.

Quantitative research is often the sole focus of high-level authorities, but value can only be gained if it is paired with qualitative methods because customer feedback is the secret to improving the customer experience and extending the customer lifetime value. This ultimately translates into business growth and increased revenue.

9 Step Structured Customer Understanding Model

CFOs and CCOs would not be in the position that they are in now if they had accepted every idea brought to them by fellow employees. Understandably, they may be sceptical about the capacity for employing qualitative data analysis to bring about superior customer experience and increased revenue. Lucky for you, our clients have had great success using our 9 Step Structured Customer Understanding model to pitch how qualitative data collection on customer experience will ensure the organisation remains on the green line of growth and improvement.

customer lifecycle management roadmap

All that’s needed then is to connect the investment to the financial and business outcome.

Step 1 - define

You need to define your business goals, and the business challenge and identify key opportunity areas. Senior leaders will not invest time, money, and energy into developing their customer experience management if they are not clear on the business objectives.

Step 2 - Discover

Using quantitative methods and qualitative data collection you need to execute a detailed and comprehensive research plan. If you go in without a plan to structure your customer data you will not understand the best practices to transform poor customer experience into positive customer relationship management.

Step 3 - Map

Customer journey mapping is one of the most powerful tools in your market research toolkit. It gives you the ability to not only map the customer experiences and customer interactions but also the staff experiences. Understanding how your customer service team works in a professional community is important because if your team lacks positivity and cohesion, you will not be able to deliver an excellent customer satisfaction score. It is therefore crucial that you identify these moments of truth before you attempt to implement your customer experience strategy.

Step 4 - Synthesise

Once you have identified the unmet needs and pain points in your existing customer service, you need to communicate them to your customer service teams. Being on the same page means that you can all determine the jobs to be done and the customer needs that need to be addressed.

Step 5 - Design

Looking ahead to the future is important because it keeps your business dynamic. Designing the Future State (Customer Value Proposition) involves developing key initiatives and identifying quick wins.

Step 6 - Align

The final control step is to ensure that everyone is on the same page. This means shifting mindsets, breaking down the silos, and ensuring organisational buy-ins. Creating the right environment for customer centricity will help reduce the risk of project failure and increase the likelihood of success.

Step 7 - Implement

The qualitative researchers have done their analysis, the team is aligned around the core outcomes, there is a clear customer experience strategy and now it is time to translate ideas into programs of work. Your customer experience team and other colleagues should agree on an implementation plan for what you want to change now, next, and later.

Step 8 - Mobilise

Congrats, you are now on your way to improving your customer experience! You now need to create systems of accountability to ensure that your customer experience team continues to execute the customer service strategy. This means realigning policies and processes to meet customer needs.

Step 9 - Sustain

The secret to brand loyalty is making sure you keep putting the customer at the heart of what you do. You could do this by connecting KPIs to customer centric outcomes. Collecting customer feedback is not a one-off thing. You need to continually collect customer experience data, understand new pain points, and understand what customer needs have been addressed by your new customer service strategy. Your customers are ever changing and so your market research needs to mirror this dynamic nature. If you can constantly adapt to the changing demands of your customers, you will extend your customer lifetime value and you will reap the benefits!

That said, don't forget to celebrate your team's successes. Recognition of organisational success is crucial to sustaining positive customer experiences.

Key Takeaways

If you would like to understand how we have helped other organisations understand their Customer Lifetime Value and build the Business Case for CX investment, click here to find out more about our Customer Thinking approach.

Or, just reply to this email with CLV in the subject and we will share with you the approach we have used for our other clients - obligation free. Our purpose is to help as many businesses get to and remain on or above the Green Line.

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