What is the one business metric that successful companies like Netflix, Starbucks, and Costco use to drive profitability? It's Customer Lifetime Value (CLV), and it's the one sucess measurement that reflects a healthy and sustainable business model.

To increase the lifetime value of a customer, you need to find ways to acquire customers inexpensively as well as make sure that they stick around longer (allowing you to get them to spend more money).

This might seem like a huge challenge, but don't fret. 

To make it easier to improve your ability to acquire and retain customers (and thereby increase CLV), you just need to match an irresistible product with an outstanding customer experience. In this article, we'll show you how to do both.

What is Customer Lifetime Value (CLV)?

Customer lifetime value, also known as customer value or customer equity, is a crucial metric that measures the expected monetary value a customer brings to your business over their entire relationship with you. It factors in customer spend, frequency of their orders, and subtracts any sales and marketing costs involved in serving them. The acronym "LTV" also refers to this same business measurement.

Customer success is a pivotal concept in understanding and maximizing customer value. It embodies a proactive approach aimed at ensuring customers achieve their desired outcomes by effectively utilizing your products or services. By forging strong relationships, maximizing customer satisfaction, and driving mutual value, customer success becomes a cornerstone of business growth. 

To gauge the effectiveness of customer success efforts, businesses rely on customer success metrics, which serve as crucial indicators of how well customers are progressing towards their goals. In this landscape, customer lifetime value (CLV) assumes paramount importance. CLV is a key metric that quantifies the expected monetary value a customer brings to a business throughout their entire relationship

To bring this into perspective, think about everyone's favorite on-demand entertainment company, Netflix. For instance, the lifetime value of a Netflix customer is $291.25. That $10-16 monthly subscription is quite lucrative when you look at the big picture.

There are many ways to calculate your customer lifetime value. Don't be overwhelmed. Here's a simple formula to calculate CLV:

[Customer Revenue (R) – Costs of Sales (CS)] x Customer Lifespan (T)

5 Steps to Improve Customer Lifetime Value

Think about your customer experience for a moment. Is it easy to do business with you? Are there obstacles to realizing your value proposition? Are you leveraging every moment to prove value to customers?

Companies today should focus on developing trust and relationships with their customers. How you treat your customer base drives increase loyalty.

On the other side of the equation, it costs a company five times more to acquire a new customer than it does to keep an existing one. Despite this, only 18% of companies focus on retention over the acquisition of customers.

Let’s dive in! 

Step One: Provide Exceptional Customer Service

Customers yearn for human contact when they need help. Three-fourths of customers desire more human interaction from brands, according to a recent study from PwC. In order of preference, customers value the speed to obtain answers, interacting with knowledgeable staff, and convenience above anything else. 

Today's customers are much more independent and self-sufficient than ever before. When customers have a question, they will usually first check for a suitable article in the company's help center. If the knowledge base lacks genuinely helpful information—or doesn't exist—customers may be more inclined to cancel or demand a refund. 

A solution like Helpjuice offers a ready-made knowledge base to provide customers the self-paced support resources they want. Don't merely publish content, but measure the support content, so you can help customers be successful. Mine through your knowledge base search analytics to uncover opportunities for new or refreshed content. 

Why choose between self-service and live customer support? Pair your help center with your company's phone service so customers can always get in touch with your team. Capitalize on every conversation and empower your staff to write beneficial support articles to support future customers. 

A strong customer support offering serves customers at their time of need, not when you're able to answer. Exceptional customer service lifts customer lifetime value by retaining more customers through resources that aid customers in discovering and receiving a direct benefit from your company. 

Don't forget tried-and-true customer service skills: thank you, you're welcome, and active listening. Not only will this reduce customer churn, but it might also become your competitive advantage in the market.

Step Two: Unpack Your Customer Lifetime Value

Your customer lifetime value is a measurement of the sustainability of your business model. A sign of a robust business model is to see a growing number of repeat purchases from existing customers.

Customer experience plays a significant role in increasing the customer's value. Every every interaction along their journey influences a customer's value. Customer interactions on the web, in person, and over the phone afford unique moments for upsells.

Diagnose customer sentiment by sending customer surveys at across multiple touchpoints. Customers are often quite candid about their impression of your company. As a result, you will unearth the weaknesses and strengths you never knew you had.

There are several ways to collect feedback to help you learn more about their experience.

  • Net Promoter Score (NPS) - Quarterly
  • Customer Satisfaction (CSAT) - After Service Interaction
  • Post-Purchase Survey or Feedback Forms - Event-Based
  • Cancelation/Refund - Automatically

The sum of your surveys tells a much larger story about how effectively you handle customer complaints as well as the overall customer experience. Even so, nothing beats picking up the phone and having a productive conversation.

Gartner predicts more than half of organizations will invest in customer experience efforts.

Step Three: Practical Ideas to Improve CLV

Once you identify the top issues affecting your customer experience, it is time to fix them. It's tempting to fix everything but focus on the areas that impact the most customers and revenue. If everything is a priority, nothing is a priority.

There is always an opportunity to improve. With a clear product message, you can lower CAC. A smooth transaction process results in larger order sizes. To decrease churn, offer personalized assistance to gain value from your product.

Messaging: Avoid ambiguity in how your company benefits customers. People don't buy into a list of features of complicated jargon. Simplicity drives revenue and customer loyalty. Empathize with your customers' daily routines. Realize that most people don't wake up every day to give you money. Instead, they seek ways to gain value to improve their lives.

Transactions: Make it easy for customers to transact with your company. Often overlooked, make your company's business phone number visible throughout all company communications. Offer volume discounts and make it easy to order products and services. Position your customer service team to upsell for relevant products and services. A customer already had paid you, so they likely trust your brand and purchase again.

Churn: Ask customers who cancel to complete a quick 30-second survey to capture the reason. Obtaining feedback from departing customers empowers you to address concerns for future customers. Provide personalized help, so customers achieve high value right away. A modest upfront fee can also increase the buy-in a customer has in adopting your solution. As a result, customers will become engaged and loyal to your brand. 

It goes without saying that you must orient your customer service around customer success. Level up your team by promoting a deep understanding of the psychology behind remarkable customer service

Here are four crucial questions you should ask yourself:

  • Is there a need our customers have that we could provide? 
  • How easy is it for a customer to spend more money with you?
  • What obstacles get in the way of a great experience?
  • When do people typically disengage from your brand?

At the end of the day, if customers cannot achieve value quick enough, they are at risk to churn.

Step Four: Illustrate a Successful Customer Experience

It would be negligent to task your company's financial whizzes alone to ratchet up your customer value. Increasing CLV is a team sport. Everyone needs to understand how they contribute to positive customer experiences.

Share stories about why customers choose your solution over others in the market. Humanize customers by inviting customers to share real-life experiences with your team. Unwavering focus on customers goes a long way in achieving excellence.

Pull back the curtain on otherwise sensitive business stats. Encourage staff to understand the benefits of investing emotional labor into contributing to remarkable customer experiences.

In business, a small hinge swings a large door. Modest improvements in retention, customer revenue, and acquisition costs make a huge difference. 

Be relentless, even obsessive about customer success. Churn is the enemy of your marketing and sales teams. Do everything you can to maximize customer satisfaction and loyalty. Be courageous enough to try things that you haven't done before. It'll cost you twice as much if you don't innovate.

Customer success isn't only theoretical. McKinsey studied customer journeys and affirms that customer journeys result in more profitable customers.

Step Five: Plan for Success & Execute

To bring your customer experience strategy to life, you need to implement changes across your company. Higher customer lifetime value is on the horizon.

Change can be difficult for some organizations, but you can manage it better by documenting key initiatives. To implement significant changes, start small and roll out changes in a phased approach. Not only will this will help keep your team's sanity, but it also allows you to measure results along the way. 

It's essential to make changes visible across all your customer contact methods. Customers typically switch between a computer, a smartphone, and 86% of customers regularly channel-hop, often across at least two channels. Businesses that adopt an omnichannel strategy achieve 91% higher retention than those that do not.

What matters most in your customer experience strategy is actually to implement it. You could spend all year building the perfect plan, or you can make a series of thoughtful improvements every month.

16 Examples of How Companies Improved Their Customer Lifetime Value

Now, it's time to see some real-world companies putting their strategies into action. These examples should inspire you to increase customer lifetime value for your company.

While most of these companies are billion-dollar enterprises, don't be deterred. As a smaller business, you have the upper hand, since you can roll out changes and react to data quickly.

Use these real-life customer experiences to foster greater customer trust, sustain your business, and increase your customer lifetime value.

1) Netflix: Create Value, Not Features

2) Apple: Request Customer Feedback And Learn Their Pain Points

3) Starbucks: Streamline Your Brand, Online And Off

4) JetBlue: Create A Buyer Persona To Understand Your Audience Better

5) Amazon: Place Customer Needs Over What Your Competitors Are Doing

6) Costco: Do Not Make Your Customers Wait

7) The ALS Association: Create Effective PR Campaigns

8) Texas Roadhouse: Provide Exceptional Customer Service

9) Target: Develop A Customer Brand Loyalty Plan

10) Lyft: Use Chatbots To Deliver Better Experiences

11) Dove: Have Brand Authenticity

12) Buffer: Be Transparent

13) Proctor & Gamble (P&G): Evoke Emotions

14) UPS: Community Involvement

15) Trader Joe’s: Offer Exclusive Items

16) Slack: Embrace Customer Feedback

1. Netflix: Obsess Over Reliability & Trust


Many people use Netflix as an alternative to cable or satellite. Netflix gives us the convenience to watch movies and TV shows at our own pace.

The company values support the core philosophy of "people over process." It provides us insight into the type of customer service strategy Netflix uses.

The company's reliable video delivery infrastructure is resilient to network errors and glitches. Engineers created a script to interrupt various back-end services at random intervals. This innovation results in a self-correcting platform requiring no human intervention.

What kind of innovations could you create to make your company even more resilient?

2. Apple: Request Customer Feedback To Ease Their Pains


Apple uses NPS surveys (Net Promoter Score) to measure the likelihood that their customers will refer them to friends and family.

Apple learns from its detractors and promoters. They want to know how to improve in-store experiences from their customers. The company sends customers an NPS survey when they buy a product or schedule an appointment at the Genius Bar. 

The results they receive help the company improve these fundamental customer interactions.

3. Starbucks: Leverage the Omnichannel Experience To Drive Value


It is vital to streamline your brand to provide a seamless experience, both online and off. This customer experience requires the making of an omnichannel approach, which Starbucks offers.

Many customers consider the Starbucks Rewards program key to their experience. Customers can reload their account with funds from their smartphones or in the store. After a few purchases, a free drink or croissant awaits them at their next visit. 

4. JetBlue: Create A Buyer Persona To Intimately Connect With Your Audience

One company who embraces buyer personas is JetBlue. Their buyer persona is that of a young, hip customer who is a cost-conscious traveler looking for a comfortable yet affordable solution to flying. 

The example below gives a clear view of the JetBlue audience. The company's posting on Twitter illustrates their target customer. From the words they use to the animations, it speaks to their buyer persona. 

Even their Twitter handle (@JetBlueCheeps) shows their cheeky tone and approach with customers.

By building a persona, you can lower acquisition costs and improve customer experiences. 

5. Amazon: Place Customer Needs Over Watching Competitors


When you become competitor-obsessed, it takes the energy off your work. Which means you are giving it to someone else -- the competition.

Amazon improvised a retail membership model seen at Costco and made it their own. Prime members receive valuable perks, including two-day shipping, music streaming, and video content.

The company's customer lifetime value now leads the industry of online retail.

What could you achieve if you didn’t care about the competition?

6. Costco: Offer Fewer Products + Satisfying Moments


Costco is a membership-based retailer that achieved a significant CLV in rather ingenious ways. 

First, they stock fewer products in each store -- approximately 5000 SKUs per store. If an item doesn't sell, it doesn't occupy space in the warehouse. By comparison, Walmart has 120,000 SKUs, which means products can sit on shelves longer. 

Second, Costco offers perks like their low-priced lunch fare, which makes shoppers feel even more satisfied. In-store demonstrations and samples are also a draw to drive up demand for select products in the store. 

The takeaway here for smaller businesses is to consider offering fewer products and services. Additionally, think about how you can deliver a premium experience for every customer regardless of how much they spend. 

7. The ALS Association: Co-Create Your Next PR Campaign


Some may remember the viral YouTube videos of the ALS Ice Bucket Challenge. After pouring buckets of ice water over themselves, participants finished with nominating friends and family to do the challenge. The viral component made it massively successful.

Some people might not be aware that it was an ALS Association PR campaign. The purpose was to raise awareness to find a cure for severe illness.

It performed well, and it went viral in 2014. By encouraging people to take part in a cause they could rally behind, people all over the world joined in.

According to Facebook, more than 28 million people joined the conversation about the Ice Bucket Challenge. People shared 2.4 million videos across the social network, raising over $115 million.

Two years after the Ice Bucket Challenge, the association announced its gene discovery, NEK1. Scientists say it is among the most common genes that contribute to the disease, and such a development will assist in finding a cure.

8. Texas Roadhouse: Complement Exceptional Customer Service With a Superior Product


Customer service is now the differentiator, beating out the location and even convenience. Today, customer service is how customers decide where to shop.

Data from the latest American Customer Satisfaction Index Restaurant Report backs this up. The report shows that full-service restaurants experience greater satisfaction than fast-food chains.

Texas Roadhouse won the top spot for customer satisfaction. It retains the top spot at 83% ousting Cracker Barrel and Longhorn Steakhouse.

9. Target: Overcome Fear For Large Purchases


Creating a brand loyalty plan is an excellent method to keep customers. Buyers love it when businesses reward them for sticking with the brand.

For loyal Target shoppers, they have a loyalty plan called REDcard. 

REDcard shoppers save a percentage of money on every purchase. They also receive free shipping on online orders and extra days for returns with no annual fee.

These perks drive customer loyalty for more expensive purchases. It also clues them into more marketing opportunities.

10. Lyft: Simplify Your Customer Engagement to Deliver a Better Experience


Chatbots are great to use when looking to provide customers with exceptional experiences. They can offer information, as well as take requests, like the chatbot used at the ridesharing company, Lyft. 

Customers can request a ride from Lyft using Facebook Messenger and Slack. You can even use voice assistants like Amazon Echo to hitch a ride.

By reducing the friction in requesting a ride, the company can capture the customer at the moment of demand. Once a driver is on the way, passengers see their driver's live location and know when to expect them to arrive.

11. Dove: Double Down On Brand Authenticity


Dove began its Campaign for Real Beauty in 2004. In 2019, it has evolved into the Dove Self-Esteem Project.

Dove does more than sell soap. It champions women's empowerment. They want to shift the conversation around beauty, so all customers are represented. The company more than doubled sales to $4 billion following the debut of its campaign.

In 2019, the Dove Campaign for Real Beauty won PR Week's Best U.S. Campaign of the past two decades.

What does your company stand for besides earning money and selling product? It starts with a meaningful idea and a commitment to support a cause felt by customers. 

12. Buffer: Live Through Your Company's Values

The social media management solution, Buffer, is a company that is about transparency. One of their highest values is "Default to Transparency," and they honor it.

Beyond social media publishing, the company encourages users to build profitable businesses Customers appreciate Buffer sharing this information publicly. Buffer has more than 75,000 customers, and it continues to grow daily.

Buffer lives up to its promise through its live business performance dashboard. It reveals all the financials of a successful SaaS company. Likewise, it indicates that the company's customer lifetime value is around $469.

What kind of metrics can you open up for your employees and customers to see and appreciate?

13. Procter & Gamble (P&G): Make The Emotional Connection


Procter & Gamble evokes emotions in customers, too. Its award-winning ''Thank you, Mom - #LoveOverBias'' campaign pulls on heartstrings.

A Harvard professor says 95% of purchasing decisions are subconscious. Emotion influences purchasing behaviors, even among the most logical among us.

As P&G earned $66 billion in revenue last year, it seems this is a company who already knows the power of emotion.

14. UPS: Involve Your Community


For more than 30 years, United Parcel Services (UPS) has supported the work of United Way. The United Way is an organization dedicated to improving lives and strengthening communities.

Together, both organizations address critical issues. They focus on early-grade reading, high school graduation rates, and financial stability.

There are many benefits your business gains from becoming involved in the community. 

  • Creates brand awareness and word-of-mouth marketing
  • Builds employee morale
  • Gives your business a leg up over the competition

Like UPS, your company should involve its community. Businesses that give back to their community create scenarios where everyone benefits. Give back in ways that fit your business values, culture, and meet your employees' needs.

15. Trader Joe’s: Be Exclusive


Trader Joe's entices customers with exclusive products to make them want to come back for more. 

One of the signature qualities of the chain is that they stock lesser-known brands of groceries in the store. The grocer’s advantage is the in-depth product knowledge employees have about every item they sell. Expert staff converse with customers about products to make more qualified recommendations.

As a result, the company is one of the most profitable retailers (per square foot) in the grocery industry. 

16. Slack: Be Real To Turn Users Into Advocates


Team collaboration software, Slack, places its 10 million daily active users at the heart of its strategy. Product insights are essential to Slack. 

The company dedicates resources into serving people regardless of their financial value. Helping non-revenue users aligns well with their freemium customer acquisition model. Likewise, all users can appreciate their straightforward, confident responses.

When people interact with your brand on social media, do you come across as confident or desperate? Being helpful is a winning strategy to improve your customer experience.

Key Takeaways

Investing in your customer experience pays its dividends in the form of profitable, long-term customers. Achieving a high CLV begins with knowing the specific levers to pull to drive that number upward.

With more than one way to arrive at your CLV, it may be prudent to use various formulae to see which one fits best with your business model.

To optimize your lifetime customer value, business leaders should focus on three objectives:

  • Lower the cost to acquire a new customer (CAC)
  • Keep customers on the books longer (Reduce Churn)
  • Increase the size and frequency of orders (Revenue)

Implementing a customer-first experience achieves all these goals and delights customers simultaneously.

Successful businesses tailor their customer experience to complement core company strengths. It's now up to you to take these examples and concepts and apply them to drive up your customer value.

Author Bio: This guest post is contributed by Gaetano DiNardi.

Gaetano DiNardi is the Director of Demand Generation at Nextiva and has a track record of success working with brands like Major League Baseball, Pipedrive, Sales Hacker and Outreach.io. Outside of marketing, Gaetano is an accomplished music producer and songwriter - he’s worked with major artists like Fat Joe, Shaggy and loves making music to stay turbocharged. To get in touch,  follow him on LinkedIn.