Increase SaaS CLV

How to increase your SaaS customer lifetime value

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Spencer Coon
Jun 03, 2020

SaaS companies’ bread and butter and real value-creator for owners and stockholders is recurring, scalable monthly revenue. Unlike other companies, aside from data management, SaaS companies have the potential to grow exponentially very quickly when they serve customers well and keep them on board as they grow. For this reason, customer lifetime value is very important for SaaS companies. 

Customer lifetime value (CLV) is a prediction of the net profit attributed to the entire future relationship with a customer. Customer lifetime value greatly affects long and short term profits and is a huge indicator of the overall success of a product. Customers stick with a product that provides value. The goal of SaaS teams should be to not only attract the right customers but serve them in a way that supports their success, decreases churn, and increases customer lifetime value. 

SaaS customer lifetime value

How to calculate LTV:

First things foremost, it’s important to understand how you calculate CLV. To calculate, you need to know: 

  • Annual revenue per customer
  • Customer relationship in years
  • Customer acquisition cost

CLV formula

 

Once you’ve determined CLV, how to improve it should remain as your team’s focus at all times for sustainable growth. Customer acquisition cost will probably remain constant or can even be lowered due to scale gains. So, your main goals for your marketing and sales teams will be to increase your annual revenue per customer (upsell) and grow your customer relationship or reduce churn. Check out the top 10 KPIs every SaaS should monitor.

Here are ways that your SaaS team can increase Customer Lifetime Value: 

Improve your onboarding process and continued feature discovery: 

Onboarding sets your customers up for success or failure. Customers who come into a product knowing how to use it to create value are more likely to be successful and stay with your product long-term. More successful customers means great customers lifetime value. When customers are unsuccessful, they churn out and your team constantly has to market and sell to replace that revenue. Onboarding should both explain and show customers how to use the product. There should be actionable steps that take users through specific actions so they are familiar with the product through doing rather than reading. Onboarding should be visual with videos, GIFs, and screenshots so that customers are familiar with what your product looks like. Most importantly, onboarding should be short and really focused on what customers need to get started right away. The faster they understand and start using the product, the better adoption will be. 

 

Educate and ensure customer success with customer support and resources: 

Customer success should be your team’s focus, period. That means not just with your product but successful in solving their problems and eliminating pain points. Your team should be a resource for customers on this mission. Your team should be there to provide support in onboarding and answering questions for customers. You should have clear and easy-to-access documentation for customers questions so that they can quickly learn and find value in your product. Your support and communication with users should also be personalized for best service. You can send emails and notifications with helpful articles and guides to segment users. An FAQ section with articles and comments sections can be helpful for self-service as a knowledge base on your product grows. Customers should be able to get personalized support from your team when necessary. A chat service with personalization and AI capabilities can help give the personalized touch. 

SaaS educational resources

 

Collect feedback and act on it: 

No product is perfect off the bat. Customers stick with products that they know are evolving to meet their needs. If they don’t feel your product is evolving, they will begin looking for other options and you will be losing potential long term customers. Your team has to prove that you are working hard to make that happen. Asking your customers what they want to see changed and what they want to see added shows that your team cares about what they need. Your team should ask customers for feedback and prove that you are working to incorporate it in your product. Your team should send out updates to users specifically naming new features, fixes, etc. Beamer is a great way to get in touch with Beamer and collect feedback. 

Beamer is an in-app changelog where your team can post updates in a discreet sidebar that opens when they click on a “What’s New” tab or icon in your interface. You can add photos, videos, and screenshots to your updates to make them more interactive and engaging. Customers can check on what your team is working on and leave their reactions and comments for further feedback. It’s the most in-context way to reach customers and ensure them that you are working to make your product better.

In addition to the changelog, Beamer has NPS (net promoter score) options to help you track customer satisfaction. With Beamer, you can present engaging, easy rating surveys where employees can rate their satisfaction with your product from 1-10. Beamer’s backend gives you a complete look as well as information on your promoters, passives, and detractors. With this information, you can better understand how to improve your product and leverage promoters for marketing. 

NPS

Release new features and updates that solve customer pain points: 

Customers love to be involved in a growing, changing product. Releasing new features and updates frequently helps keep customers engaged and bring back customers who are likely to churn out as well. You have to stay ahead of competitors and move quickly to solve pain points for customers so they don’t look for new solutions. Customers who see a product evolving to meet their needs will stay on board for longer, boosting CLV. The key is in communicating new features to customers and onboarding them to customers effectively. Beamer allows you to share new updates and features in context right within your product where customers can immediately engage with your new feature. Emails do not get the same open and engagement rates as in-app updates. You can also utilize push notifications to bring users back into your product every time you post a new feature or update to boost engagement and bring back slipping customers. 

Promote annual billing cycles: 

Everyone loves a good deal. And every SaaS leader loves when customers sign up for a year and not one month at a time. You can guarantee that you sell 12 months worth of subscription in the same time it takes to sell one month if you tweak your pricing and sign up to get users to sign up for an annual plan. You can do this by offering a discount off the monthly price if users sign up for a year ahead. Oftentimes 15-20% is standard. You also want to present pricing so that this option is first and foremost and the difference in savings is celar. You can point out the difference in yearly cost or use the monthly cost of an annual sign up as the default pricing option.

 

Leverage product and pricing personalization: 

Outside of your actual product or customer service, you can also increase CLV through pricing strategy. You can allow customers to pick and choose the features they want to use for pricing that meets their needs instead of having to move customers over certain payment levels. This way, customers can increase their payment level as they need overtime. With large price jumps, some customers may be reluctant even if there are perks at different levels they would want. They feel more in control and feel they are paying directly for the value of the features they want. You can also push personalized offers and reminders to customers to get them to add additional features in the future. Intercom has this pricing option with “a la carte” options for pricing so customers can alter their use of features overtime, increasing CLV. 

Offer premium features and service levels:

If you are a relatively cheap monthly subscription or free, you can increase CLV and upgrade more free customers to paying customers by offering key features and higher service levels at a premium price. For example, Dropbox offers higher storage levels for a monthly price. As your account grows overtime, you move from free to a paying customer. Mailchimp prices based on contacts in your list and charges to unlock additional features. This way, you can still attract new users with your free product but increase their lifetime value as they gradually rely on your product. Customers who are happy with your free product are likely to be happy paying for more or better services. It’s a natural progressive for consistently increasing CLV. 

 

Customer lifetime value tells much more than just how much customers are willing to pay. It tells you how your product is meeting your customers’ expectations and what level of service tour team is providing to help customers be successful with your product. When your team works to keep customers engaged and provide value by consistently improving your product and service, your CLV will naturally increase. For an easy way to keep customers engaged with your product and team, try Beamer today.