As a subscription-based business, if your goal is increasing your customer lifetime value without pushing up your subscription price, then you have to make strategic choices aimed at reducing customer churn; improving customer experience and increasing revenue from existing customers.
With that in mind, here are a few ideas on actions you can take to improve your customers’ LTV:
Start a customer referral program
A customer referral program has two major benefits. First, it incentivizes existing customers to promote your business. Second, data on referral programs shows that referred customers are 18% more loyal, have a 16% higher lifetime value, and spend 13.2% more than non-referred customers!
The following steps outline how to start an effective referral program.
Steps to create a referral program:
Identify your target audience: First, determine which customers are likely to refer others to your business. Then, use the customer data to create a customer persona based on their purchasing history.
Define your incentives: What reward or incentive will be offered to the referrer and the referred customer? Ensure it’s enticing enough to motivate a customer to participate. However, this shouldn’t come at a detriment to your finances.
Develop a framework: Highlight the program structure, referral process, and how rewards will be distributed, including terms and conditions, in a clear and easy-to-understand way.
Promote the program: Use multiple channels such as email, social media, and your website to promote the referral program to your customers. Consider offering an exclusive incentive to customers who refer others to your business.
Measure and optimize: Track the performance of your program to measure its impact on customer acquisition, retention, and LTV. Use this data to make adjustments and optimize the program over time.
Offer perks and rewards to your loyal customers
Your lifetime value calculation will tell you who your most valuable customers are. So, you’ll want to make sure that value is reciprocated! One way to do that is by offering those customers special perks and rewards for continuing to buy from your business. For example, you might offer early or discounted access to new features of your service.
Collect and respond to customer feedback
Knowing what your customers love about your business is nice. Knowing what they dislike about your business is even better because you can use that information to improve your business.
You can do this actively through customer satisfaction surveys; or passively by monitoring social media mentions of your company.
What is more important than collected customer feedback is what you do with it. It is not enough to know problem areas, addressing them is key to reducing churn rate. One way to do this is by creating actionable solutions to major issues, consequently turning would-be subscription cancellers into future referrers.
Pay special attention to customers at the end of a billing cycle
Acting on customer feedback becomes even more important when customers approach the end of a billing cycle. Soon, they’ll have to decide whether to renew their subscription. And you want to make sure they have no doubts about what decision they’ll make.
To reduce churn with those customers, consider sending them personalized messages to ask how likely they are to resubscribe and what factors could influence their decision.
Incentivize annual billing
To renew or not? That is the question every customer faces at the end of every billing cycle. Their response, of course, affects your customers’ lifetime value. This is a question that could negatively affect your customer lifetime value. How come? Because it could lead to the end of the customer’s relationship with your business — especially if your customer is on a monthly contract.
To avoid this potential loss in recurring revenue, make your annual subscription plans as attractive as possible. Of course, offering a discount rate for annual plans is a good idea. You can also offer exclusive access to valuable content from your business.
Increase customer spending by up-selling and cross-selling
You can increase your customers’ spending on your business by mastering the art of up-selling and cross-selling. Up-selling refers to offering customers a better version of your service for a higher price. Similarly, cross-selling refers to offering customers a complimentary service for an additional price.
According to a study, the success rate of selling to existing customers is 60-70% while selling to a new customer is 5-20%. Your current customers are the strongest potential buyers for cross-selling or upselling. The customer already has a relationship with you.
For example, if you’re a SaaS company, you can upsell by regularly marketing the additional benefits of your most premium plan to your existing customers. And you can cross-sell by creating and marketing valuable add-ons to your service.
Perhaps, this is the secret recipe for larger companies that upsell to their existing customers, as captured by the 2022 Private SaaS Company survey.
Improve onboarding process
Your onboarding can make or break your customer’s first impression of your product or service.
Effective and smooth onboarding can ensure your customer sticks with you for a long time. Customers who experienced a smooth onboarding process are more likely to be loyal to your brand, which can help maximize your LTV.
To give your customers an effective onboarding:
1. Reduce friction in the account setup process through user-friendly actionable steps.
2. Provide a detailed product demonstration through videos and step-by-step guides to aid your customer’s understanding of your product and service.
3. Offer personalized support through calls or chats to ensure your customer feels valued.
4. Set clear expectations for your customer regarding your product features, benefits, and limitations.
5. Collect feedback from your onboarding process to measure its effectiveness. It helps you identify areas for improvement and where changes are needed to optimize the onboarding experience.
Offer personalized experience
There’s no better way to meet customer expectations, drive their loyalty, build deep connections, and give them a better customer experience than through personalization of service. It helps you to meet their unique needs and preferences. 70% of consumers spend more with companies that offer a personalized experience, according to a CX Trends 2023 report.
When you meet your customer’s unique needs through personalized service, they’re also likely to recommend your brand to others, which can convert new customers and increase lifetime value. McKinsey’s study Next in Personalization 2021 Report shows that businesses that get personalization right generate 40% more revenue. The same study also indicates consumer rewards this brand has as:
76% say they’re likely to make a purchase
78% say they’re likely to recommend friend and family
78% say they’re likely to repurchase.
Subscription companies that use personalization
The following subscription companies use personalization to retain their customers and improve their lifetime value.
1. Netflix: Netflix keeps users engaged over time, through personalized movie suggestions based on customer data.
2. Amazon: Through customer data such as purchase history, search history, clickstream data, and customer reviews, Amazon recommends personalized product suggestions, targeted email campaigns, and customized offers to customers.
3. Spotify: Through users’ listening, search history and social media data, Spotify makes personalized recommendations of music playlists and podcasts to users.
Ways to improve your business’ personalized experience
Data collection: Collecting customer data such as interest, preference, and past purchases helps you understand products to offer and how to tailor your service to customers’ preferences.
Segmentation: This makes it easier for you to offer customer services based on their demographic, purchase behavior, and interest.
Personalize recommendations: Through data collection, you can offer different product or service recommendations based on their purchase history, browsing history and other customers with similar interests.
This extensive blog post highlights 10 ways to offer personalized customer service.
Build your tribe: creating and nurturing raving fans
For a subscription business, there’s no better way to grow LTV than to build loyal subscribers — it could be the difference between a thriving and barely surviving business. This entails creating a strong fan community through newsletters, forums, social media, or in-person events. This will help increase your customer loyalty scorecard, leading to more sales and ultimately increasing your customer lifetime value.
According to a survey conducted by Sprout Social, 55% of consumers learn about brands or companies on social media. Engaging your audience online will create a positive impression of your brand and improve your existing customers’ loyalty. Here are some quick ideas to help you build a loyal tribe for your brand:
Encourage user reviews and rating
Ensure customer feedback is heard and duly attended to
Create content that resonates with your audience
Organize contests and events on social media to engage your audience
Build customer advisory board
Customers loyal to the brand provide feedback and insights about your product development and marketing initiatives.
Customer advisory boards enable you to gather customer feedback, further improving your product or service to meet customer needs. It also provides you with real customer data, enabling you to provide a tailored experience.
Why is this effective? According to Ignite Advisory Group, companies with customer advisory boards experience a 9% increase in new business after the second year.
Another study from Forrester indicates that 79% of marketers who turn their customers into advocates see an increase in upsell, cross-sell, and enrichment.
Optimize pricing to maximize LTV
Subscription businesses thrive on their customers’ recurring revenue. And pricing is essential for revenue growth — so if you don’t get pricing right, your revenue growth will be stunted.
A study shows a 1% increase in price contributes to 11% profit. Hence, it’s essential that you optimize pricing to maximize profit. Sadly, many SaaS businesses overlooked pricing —
This study finds a correlation between churn and pricing. The reports found that companies with low ARPUs experience higher churn than those with much larger ARPUs.
To increase your customer lifetime value — you need to control or lower your churn rate by increasing your ARPUs through optimizing your pricing.
Optimizing pricing is crucial to driving sustainable growth and improving your business’s lifetime value.
First, determine that your customers are willing to pay for the value you offer through value pricing.
Luckily, we’ve covered everything you need to know about value-based pricing.
Second, use a tier pricing system that accommodates different customer segments to enable you to meet their needs and budget.
Third, offer a free trial and promotion to attract new customers — however, ensure you monitor customer behavior as abuse of this opportunity will be detrimental to your business finance. Software like HubSpot, EngageBay, and Hotjar are your go-to marketing CRM software for this.
And finally, keep monitoring and adjusting your price.
Offer a flexible payment system
For a subscription business where customers pay periodically, a flexible payment system can increase your customer base and, ultimately, your business’ lifetime value. When they struggle to make payments or renew, they may churn and move to your competitor with a more flexible payment system.
For example, while Ahrefs is arguably one of the best SEO tools available, some customers have complained about their payment system.
Give your customers a friendly and seamless UX/UI experience while trying to pay for your product or service. Here are other ways to improve your payment structure:
Payment methods — use the most commonly used payment platform within your customer base; if possible, offer a wide range of payment methods to accommodate more customers.
Payment structure — give your customer the option to pay monthly, quarterly, and annually. This way, you accommodate customers who can’t afford large upfront payments and are flexible in managing their finances.
Auto-renewal options — eliminate the stress of going through a tedious payment process which can increase their loyalty to your brands.
Upgrade and downgrade options — Offer customers the option to upgrade and downgrade their subscription based on their financial capacity. This improves customer retention because customers who can no longer afford the premium price may choose to downgrade instead of churn.
Start strong, finish stronger: Working with a new customer
Many businesses have only a good start but need better finishing. And this has contributed to increasing the churn rate. Building a lasting relationship with your customer should be a must for a subscription business.
To build trust and lasting relationships with your customers, you need to keep up with, if not exceed, the momentum of the first impression throughout their customer journey. This can translate to greater customer satisfaction and loyalty. To make first impressions last beyond the first click, make sure you:
Set clear expectations about your product or service.
Provide swift responses to customers’ questions and queries.
Check in regularly at every step of their journey.
Invest in customer service training to equip your representatives in handling customers’ concerns.
Offer additional resources and support to help them make the best use of your product or service.
