CRM Tips: Six Benefits of Customer Lifecycle Value for Businesses

CRM Solutions, Digital CRM

State-of-art technology, employing the best teams and management, deploying innovative marketing approach, you might be forgiven in thinking that this is all what it takes to succeed in your business. Except, you are missing one key ingredient. Understanding Customer Lifecycle Value (CLV) and using its benefits.

Companies are increasingly adopting customer lifecycle value to develop better products to stay ahead of the competition. So what is CLV? To put it simply, it predicts the value of a client relative to the company's net profit. Assisting companies in adopting a more customer-centric approach, CLV, analyzed through CRM solutions, also enables businesses to channel their marketing efforts to enhance customer experience and improve cross selling.

With the help of CLV, you can overcome the limitations of prior customer programs i.e. a) Identify the best customers during their lifetime and b) know how valuable customers behave. Here are the benefits of customer lifecycle value, put in action through CRM software, to businesses.

1. Segment customers

Most companies have a customer base that consists of a minority group generating the most profits. CLV aids in identifying and retaining the minority group via customer profiling and segmentation. Research shows it is 5-10 times more expensive to get a new client than retain an existing one. Additionally, increasing customer retention efforts by 50% increases a company's profits by 25%.   

Companies can then provide customized products and services that lead to:

  • Profile based pricing to obtain maximum revenue per customer.
  • Target clients based on value potential.

2. Enhance forecasting accuracy

Almost all companies use metrics like customer satisfaction, customer's buying intentions, and positive brand sentiments (to name a few) when analyzing customers' experience. However, the solutions derived from intensive research are often not translated into actionable predictions or decisions. CLV helps companies by giving (almost) accurate results of the effects on customer retention rate and customer profitability if say the customer satisfaction reduced from 89-85%.

3. Improve resource allocation

CLV also aids in predicting the future demand for a product or service thus helping companies to plan better. Firms can allocate adequate resources regarding teams, budget, product inventory based on the forecasts. It also aids in reducing productivity losses due to haphazard resource allocation strategies.

4. Re-define loyalty programs

Businesses, using CLV, can re-invent their loyalty programs based on more accurate information (e.g. effects of new discounts, a particular service, or an exclusive offer). As such, firms can compare the results of two different loyalty programs and adopt the best. 

5. Manage sales force better 

With CLV, companies can identify the geographical regions to focus on and better distribute the sales resources, through sales management tools inside CRM. It also helps businesses to adopt better reward systems for their agents (e.g. offering bonuses to agents who sell to clients with a high CLV or paying them based on the largest number of customers signed up instead of the highest annual sales.). CLV also guides sales teams towards higher cross sell numbers with intelligent cross sell modelers.

6. Identify churn and look for a win-back strategy

How 'probable' is that a particular customer will stop his purchase or subscription is indicated on customer 360 degree page on the executive's screen. This information helps him/her may decide to follow up the customer to (or “intending to”) win him back or offer an incentive. Win-back customers exhibit different CLV before and after defection; Research shows the latter CLV is better than the first.

The benefits listed above show that CLV is a reliable metric for organizations to analyze and gain maximum value for customer engagement.