These “costs” aren’t optional. Ignoring CLV means losing customers, and given that it’s axiomatic that it costs four times more to get a new subscriber than to retain an existing one, managing the customer lifecycle effectively is a key strategy to achieving growth. Increasing recurring revenue (U.K. operators typically spend more than €300 to acquire a new customer) is therefore the goal.
Customer lifecycle strategies have evolved over time. Now, the focus is on providing an exceptional experience, personalization, developing a long-term relationship and most recently adapting to changing customer needs. Software solutions help deliver these outcomes by enabling CSPs to leverage their customer data and organically manage the lifecycle of a customer from onboarding to exit.
State-of-the-industry Customer Lifetime Value management solutions provide valuable insights into customer behavior using metrics or key performance indicators such as:
- Retention Rate (p) - This shows the probability of the customer being with the company over a given period. This rate can be determined with the help of historical data.
- Churn Rate (y) - The probability of a customer leaving the organization within a stipulated time regardless of the reason.
- Discount Factor (d) - It uses the factors which aid in discounting the future cash flows to illustrate the current value of the organization.
- Net Return (r) - This is the total amount that a customer has contributed to the firm during his time.
- Net Costs (c) - This consists of the total of all the expenditure conducted on the customer for a given period. For instance, production, delivery, assistance cost, etc.
- Net Profit (p) - The amount difference between the cost and returns a customer has provided during a stated period.
- Time Horizon (t) - CLV must be an integral part of any marketing strategy. According to the research by Forrester, “The widespread adoption of CLV will affect far more than customer interactions. It will prompt unlikely collaborations, transform the way financial markets value companies, and ultimately blur the lines between personalization and monetization.”
Another study study conducted by McKinsey and Co. makes clear the reasons why CSPs cannot ignore CLV as a foundational pillar of its growth strategy:
- 75% of online customers expect help within 5 minutes.
- 70% of app users prefer added functionality over the “look and feel” of the app.
- 75% of consumers have used comparison apps for consumer goods.
- 79% of consumers trust online reviews as much as personal recommendations.
- 61% of customers are more likely to buy from companies that deliver custom content.
- 60% of US consumers are concerned about the privacy of online transactions.
Billables fuel an organization and it is paramount to assess which clients bring in more value and revenue to the business. CLV means identifying and retaining the most profitable subsets of clients by providing a seamless customer-client relationship over the lifetime or their relationship with the service provider.