How To Increase Customer Lifetime Value
How To: Increase Customer Lifetime Value
Have you ever tried to grow by just adding new clients without growing existing client spend?
Most businesses start out that way, and only some of them learn that it is one of the easiest ways to grow.
It goes something like this:
Find a potential customer, sell them something useful, sell them more of that useful thing, learn more about them, sell them something else. Repeat.
It’s always easier to encourage current customers and key accounts to increase their existing investment, than win new customers from cold.
The responsibility for increasing revenue lies with the executive team, to make sure that someone in the team has the time, resources, and incentives aligned with growing existing accounts. From there - the actual role of that person depends on the maturity and size of the organization and how client deliverables are handled.
Two common structures are:
Sales handles new business, renewals and upsell work, with other deliverables and support coming from other teams.
Sales handles new business, and then hands over to an Account Manager who would handle upsell and renewals.
If your business is early stage - its most likely that those people with the skills to negotiate and ask for money will be the ones doing that upsell and renewal work, regardless of their title.
How to Increase Customer Lifetime Value?
When looking at how to increase the value of customer accounts, there are a few questions worth asking yourself and team:
Are you maximizing contract value at new business or leaving money on the table?
Are you purposely leaving room for growth and then failing to execute the upsell?
Are there new products and services you can offer to existing accounts?
At what point should the team aim to up-sell or cross-sell?
Are there new ways you can solve other problems they're having in today’s market?
Start with assessing what you are currently doing, and then look at ways you can improve the results your customers get, so that they want to do more business with you.
To maximize new business contract value - start with mindset.
The main factor in increasing new business deal size is sales mindset - first, your sales team needs to be confident that more means better results for the client, and they need to be comfortable putting a deal forward that the prospect can say yes to.
One of the biggest blockers is inexperienced or risk averse salespeople who are scared to close a larger deal because “I don’t want to blow the deal” or “it’s a lot of money” or “I don’t think they will be able to afford it”. If you regularly talk to your team about their deals, I guarantee you will hear some version of these. The truth is that they are all confidence issues - they either do not believe the product actually works, or they are applying some personal “ceiling” to deal size because it seems large to them personally.
These need to be addressed, and quickly - as they are keeping your deals small and your salespeople timid. Confidence comes from a combination of evidence of success, where larger investments yield larger results, and also social proof - where others have sold deals that size before and proved it is possible.
Remember the story of the 4 minute mile? Roger Bannister was the first person to break the 4 minute barrier in 1954. The second person accomplished this barely a year later, and in 2020, high school athletes regularly reach this level.
Human psychology is consistent in that most people don’t believe it until they see it, and “most people” includes your team, and your prospects. So if you can lead by example, support or personally close some larger deals, and share the stories of successful clients, then your most entrepreneurial salespeople will blaze a trail to larger deals, and the rest will eventually follow.
The mindset must be:
“Our service or product drives revenue or reduces friction for a client, which means that selling them more of it will get them to their stated goal faster. I am helping them succeed by selling larger contracts.”
Note: As a business leader, you must remember that bigger deals also = bigger churn risk if you don’t deliver on the promise. This means you have to build confidence among the sales team, without making them reckless.
Tip: The best deals always have a specific and time bound goal, which can then be used as leverage to drive up contract value using a specific bundle of services as your proposed solution, and an offer with a time based deadline to help them accelerate their decision.
Example 1 : “you mentioned you wanted to achieve x leads from your website per month and your timeline to get that done is less than x months. In that case the best way to do that will be to invest in [high service level] with [bolt on service] and [bolt on service], which, if you buy all of them together before {deadline} is reduced from {large number} to {smaller number}, which saves $x,000.”
Example 2 : “you mentioned that you ultimately want your whole team to be using the platform, and that once they are up and running you’d expect them to achieve x% costs savings, so we have put together a special offer for you based on all x users, which is good for the next x days”
How to leverage upsell to increase lifetime value
The most effective way to upsell is to first ensure that the customer is very happy with their existing investment. Let me just say that a bit louder:
WARNING: if you ignore the existing happiness metric you may lose the existing revenue as well as failing to upsell.
When upselling - you are looking to achieve two main objectives:
increase the overall lifetime value of the customer.
achieve monthly/quarterly growth goals.
If you work smartly - you can meet both objectives with a well structured deal. Here are a couple of examples:
Example 1: If you sell software with user licenses, one effective method of securing the increase in lifetime value is to make a one time offer on the price of each additional license, on the condition of extending the contract renewal date by another 12 months from signature of the upsell, a whole new contract with more licenses. If they do not extend the term, then the price per license is the full retail price. This means that either way they get what they need, and can choose the deal they wish to buy.
Example 2: If you’re in the world of services, then you can leverage the additional commitment of people and resources to deliver the additional services as a reason to gain additional contract length commitment, again using at an attractive rate vs full retail price as an incentive.
To do these, the company will need to cancel the initial contract and credit any training amount toward the new higher value contract, this admin has a high ROI!
When to upsell or cross-sell to increase lifetime value
First - here are the Merriam-Webster definitions of upsell and cross-sell.
Upsell: to try to convince (a customer) to purchase something additional or at a higher cost.
Cross-sell: to sell or promote (a different or related product or service) to an existing customer
The ideal time to introduce the idea of upselling to increase the value of a contract is after a period of high satisfaction with the results generated. Examples:
Team 1 achieved outstanding results last quarter using this platform - when would you like to extend this to team 2?
Your team excelled last quarter - smashing the goal we set out to achieve using the platform we implemented for you. I noted that you are also experiencing challenges related to [new problem], would you be interested to see how we have solved that for others?
The cross sell to another product or service can be very simple if you are able to identify issues they are facing that your team or other product can solve.
Another great time to increase contract value is when you are NOT getting the desired results, and extra investment will help the client get there. Example:
We made good progress with your content marketing strategy last quarter, yielding x results, but not reaching the stated goal. Our proposed solution is to double down on this strategy to increase the results, and introduce another product we have that solves this specific problem.
In order for both of these to be possible, an ongoing working relationship with regular check-ins is ideal. Enter the “Quarterly Business Review” (QBR). The QBR is a meeting that takes place to specifically review the impacts and issues related to what you are providing for your client, you guessed it, every quarter.
During a QBR, the achievements and issues in the last quarter are called out, along with a forward looking plan for projects and actions in the coming quarter. This is a great opportunity to suggest additional ways you can provide value for the client, and begin to work with them to find the budget to execute on them. This may be a project that takes multiple quarters of work to build the trust and relationship in line with the increasing contract value, and so you need to have a repeatable format for delivering a QBR that presents the data in a way that's constructive and easy to review.
Leveraging the QBR to drive the client’s objectives and report on what else you can do to help them get there is a very solid way to collaborate on growing your partnership, and therefore the contract value, and ultimately lifetime value.
I hope you enjoyed this quick tactical guide to improving lifetime value. If the above sounds like a project you need to work on and you want some help, you should know we help B2B companies through this all the time. If you have at least $500k in revenue and are committing to growing, we may be able to help you, too. If this sounds like you, you can apply for a free consultation at this link
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