Partners Over Partnerships: How Authentic Customer Lifetime Value Can Drive Growth Customers have many options to choose from, and they don't buy from you just because you want them to — your motives really attract them.
By Stephen Ezell Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
Seamless ecommerce has become table stakes for consumers. In 2021 alone, U.S. ecommerce sales reached over $870 billion; a number economists did not forecast to occur until this year. Customers not only find brands they love online but choose to form long-term relationships through subscriptions and memberships. The recurring subscription-based business model has experienced unprecedented growth in the last ten years. Over 85% of U.S. consumers are active subscribers as of May 2022.
These trends highlight an evolving set of consumer expectations for B2C businesses. Organizations who hope to win in the ecommerce channel and get ahead of their competition must return to a fundamental understanding of their customer. After all, consumers don't magically buy things from you because you think they should. They buy for a litany of underlying motives.
Businesses must actively pursue their customers as partners in the organization, using Customer Lifetime Value (CLTV) as a critical measurement of their success.
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What is Customer Lifetime Value (CLTV)?
CLTV is the amount of money, on average, a business earns from a customer over the relationship.
This metric is essential to understand and utilize for multiple reasons. It demonstrates the impact of customer retention. Research by Zippia shows that 65% of a company's business comes from existing customers, and more than 70% of customers will switch to a competitor after one bad experience with a brand.
CLTV encourages companies to view consumers as partners, impacting a brand's journey and its products. At Truly Free, we see our customers as family. Let me say that again… we see our customers as family. These are not just words on a page, but we try hard to act them out daily and in every action.
At every step in the customer journey, we ask if we would recommend this to our families. Everything from the prices we charge to the ingredients that we put in our products has the primary consideration of our customers in mind. This deep commitment to our customers at every level of the organization directly impacts our Customer Lifetime Value.
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How to improve Customer Lifetime Value
The customer value journey begins with data. As a business, there are several opportunities to collect data to fuel your understanding of consumers and their habits. This includes demographic, transactional and buying preference data.
Data should also be gathered across all touchpoints of the customer lifecycle. We heavily emphasize measuring 30, 60, and 90-day CLTV as we've found the first 90 days of a customer journey is key to optimal customer satisfaction. This data can then be used to actively engage customers where they are in the buying process with content they care about. Again, think of the customer and their needs initially and throughout the relationship.
When it comes to recurring business model companies, accurate data gathering and analysis, along with interpretation and action are crucial. Subscription-based business models are built on a cornerstone of relationships. Gaining in-depth knowledge of your consumer's buying habits and what keeps them returning is essential to driving lasting connections.
Make sure you determine your customer acquisition and retention costs. We use unit economic analysis and CLTV to help us determine where we invest our marketing dollars. Hence, CLTV is at the core of allocating the marketing budget. This commitment to retaining and increasing customer satisfaction with our brand (measured through CLTV) helps to ensure that the investments you make to acquire customers and retain them create a win for customers and a win for the business (in the form of positive ROI).
By reviewing current customer data, key experience touchpoints, and the cost of acquisition and retention, you will begin to identify and gauge the impact of high-value customers and adjust your marketing investments accordingly.
Related: How Billion-Dollar Companies Think Differently About Customer Relationships
How to build authentic customer lifetime value
There are numerous methods for actually calculating customer lifetime value. Whatever your method, I believe the most critical piece is ensuring your value is authentic. Today, many consumers are turning toward brands that prioritize social impact. Yet brands are not ready to meet that demand. Research by Deloitte found that only a third of companies currently see social impact as core to their strategy.
It's time for consumers to become partners with brands — and for brands to embrace this mindset. At Truly Free, we make sure every consumer knows the power of what they purchase. Rather than thanking our customers for buying laundry detergent, we let them know that their purchase generated $481,000 for local communities worldwide, has helped free over 230,000 homes from harmful chemicals, and helped eliminate over 6.2 million single-use plastics, so they feel part of a larger mission.
Connecting your customers to a genuine need and larger purpose helps build a connection to your brand and ultimately drives a longer-term customer with recurring revenue streams.
