Customer Lifetime Value: What It Is, Why It Matters, and How to Increase It

Are you wondering how to increase CLV for your SaaS business? You have come to the right place. Let’s start by decoding Customer Lifetime Value (CLV).

CLV is the total amount spent or total net profit generated by a customer on a single company’s products/services over their lifespan. It can also be an estimation for business purposes, but either way, it is about customer satisfaction, retention, and delight, and building a business that delivers genuine value.

So, a sharp focus on customer success strategies is the key to increasing CLV. But first, let’s understand why it matters.

Why CLV Matters for SaaS Companies?

Customer Lifetime Value (CLV) is a critical metric for SaaS companies because it helps shift the focus from short-term sales to long-term customer relationships.

More Economical to Retain Customers Than to Acquire New Ones

The average customer acquisition cost in SaaS is $702, with Fintech being the highest at $1450 and e-commerce the lowest at $274. But even in e-commerce with comparatively easier customer acquisition, the costs are consistently going up, by as much as 222% in 8 years.

At the same time, the SaaS conversion rate is between 1% and 11%, depending on whether it is Freemium or B2B, while the month 1 retention rate itself is close to 50%!!

Clearly it is cheaper and easier to retain customers in SaaS than to acquire new ones.

Helps Predict Future Revenue

CLV helps you plan for the long term and in the process gives you an estimate of the future revenue.

As you build the profiles for your ideal SaaS customers, you calculate your predictive CLV, either in terms of revenue per customer over their lifetime or yearly revenue from your ideal customers, which helps predict your overall future revenue.

Identifies High-Value Customer Segments

As we mentioned in the above point, CLV helps SaaS companies plan long-term, and one of the most important steps in the process is identifying their high-value customers.

It is only when you get down to the basics of customer profiling based on demographics and their needs, challenges, and problems, that you figure out the best customer-product fit, thereby finding your high-value customers.

Improves Retention and Customer Experience

When you work with CLV, your aim is to keep moving the existing customers deeper into the sales cycle.

This automatically paves the way to improve customer retention and experience with strategies like better onboarding, valuable upsells, and addressing any challenges that exist in the customer journey.

Factors That Can Impact Customer Lifetime Value

For SaaS companies, understanding these factors is essential to improving retention, boosting revenue, and making smarter growth decisions. Let us expand on some of these factors.

Customer Onboarding Experience

SaaS eventually becomes easy to use, but it takes some getting used to. Also, depending on the industry and the ends it is serving, SaaS can be complex and difficult to understand.

So, optimizing the first interaction for your users, that is onboarding, must be your go to customer success strategy. That is what takes your users to that Aha moment where they realize and experience the value of your service that eventually builds up to a great CLV.

Product Usage & Feature Adoption

Once past the initial stage of activation and subscription, you must drive product usage and feature adoption. Until your customers are exploring your service in all its dynamism, a good CLV is out of the question.

Average Purchase Value

APV is the average amount a customer spends when they buy your service. Keeping track of APV helps you spot trends in spending behaviors and adjust your sales strategies to build a good CLV.

Customer Lifespan

Since CLV is directly related to a customer’s lifespan or the length of time for which they use your service, this is one important factor to consider.

You must look into when the customers tend to stop using your SaaS and figure out how to build up usage/ momentum from there.

Churn Rate

Since churn rate and CLV are inversely related, keeping your churn rate to a minimum is another important factor toward achieving a high CLV. 

Service value must either remain consistent or increase with each stage of the customer journey. Otherwise, churn is a very real possibility.

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Tips to Improve Your Customer Lifetime Value

In this section, we’ll dive into actionable tips that help you strengthen relationships, reduce churn, and maximize the long-term value of every customer.

Improve and Personalize the Onboarding Process

An effective onboarding process is crucial for the success of a complex service like SaaS. It can increase customer retention by up to 50% and therefore must be carefully crafted to improve CLV.

It must be highly personalized, identifying the customer’s ‘Jobs to Be Done’ (JTBD) and pinpointing their expectations in detail.

Also, since the maximum drop-off happens between trial and first payment, making the initial onboarding process as gripping and as meaningful as possible can ensure low churn and huge success.

Here are a few pointers for a great onboarding process:

• Welcome screen with a micro survey about their expectations
• Segment your onboarding process
• Show onboarding checklist and progress bar
• Create interactive product tours and walkthroughs with images, tooltips, and other visual cues.

Provide Excellent 24/7 Customer Service

Lack of effectiveness and speed are the highest contributors to customer frustration, and you can avoid both by providing 24/7 customer service.

Also, you know that poor customer service can result in churn, but did you know that 42% of consumers would even pay more for a friendly customer service experience?

So, delivering timely in-app assistance and 24/7 on-demand support helps deflect support tickets and ensures a seamless customer experience, boosting your Customer Lifetime Value (CLV).

Offer Seamless Omnichannel and Live Chat Support

As per a study, businesses go unaddressed about 50% of consumer complaints on social media. This is a huge lost opportunity that can have big returns from the CLV perspective.

So, it is important to provide immediate live support to your customers where they are (other than the traditional channels like emails), and therefore, selecting your support channels accordingly will pay off in the long term.

Your customers are probably active on more than one platform, such as Instagram and X, so you must have a support team to identify missed opportunities.

Listen to Feedback and Act on It

CLV is all about maximizing customer satisfaction and value, so they stay with you for as long as possible. And what better way to ensure it happens than by incorporating customer feedback?

So, you must collect feedback in the most efficient ways that suit your SaaS, such as through surveys, feedback widgets, user testing, etc., and then use this feedback for maximum impact.

Build a Strong Customer Community

When it comes to building a high CLV, it all comes down to fostering brand loyalty through customer relationships and a sense of community. There may be many service providers for the same service, but it is how your customers relate to your business that can make all the difference.

You can use social media platforms like Facebook, forums like Reddit and Quora, or create your platform for it. Define a clear purpose for the community and choose members and platforms that facilitate it the best.

Map and Optimize Customer Journeys

Personalization is important throughout the SaaS customer lifecycle to provide maximum value and make them feel valued at the same time.

To do this effectively, you must map customer journeys and optimize the touchpoints at each stage in the journey. So, personalization keeps evolving before, during, and after purchase to achieve a high CLV.

Maintain a Self-Service Knowledge Base

The success of a SaaS business depends on how simple it is for your users to navigate your service, thereby minimizing the time they spend realizing its value. You cannot achieve this goal without a self-service knowledge base.

Not just this, 70% of customers prefer to use a company’s website to get answers to their questions rather than use the phone or email. So, having a self-service knowledge base is no more a choice but a necessity to keep customers satisfied. 

For a smooth customer onboarding, 24/7 customer service, and increased customer engagement, a dynamic, preferably AI-based knowledge base is your answer for higher CLV.

Case Study

Vodia Improves Customer Relationships Using Document360 Knowledge Base

 Jared Blake, software developer at Vodia says

Customer feedback enables Vodia to engage with its integrators in a whole new way. It provided a ton of value to relationships, which is an important thing for their business.

Take a look at this case study to see how a Document360 knowledge base helped Vodia, a Voice-over-Internet Protocol (VoIP) company, build better customer relationships, translating into better CLV.

Smart Ident Achieves Seamless Customer Onboarding With Online Customer Portal

Take a look at this case study to see how a Document360 knowledge base helped Smart Ident, an onboarding e-platform, build better user guides and host all important user information in one place, helping users to implement it faster, translating into better CLV.

Conclusion

From understanding why CLV matters to identifying the key factors that influence it and implementing strategies to improve it, every step contributes to creating a more loyal, engaged, and profitable customer base. Whether it is through better onboarding, responsive support, personalized journeys, or a self-service knowledge base, boosting CLV is ultimately about delivering continuous value that keeps customers coming back.