Principal Consultant - Customer Op's & CX Transformation IP Integration
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Calculating the lifetime value of customers

5th Mar 2020
Principal Consultant - Customer Op's & CX Transformation IP Integration
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The impact of customers on business is undeniable. They make purchases, leave reviews, and recommend your brand to friends. Put simply, without customers businesses couldn’t survive. However, do you know what their actual ‘value’ to your business is?

In an increasingly competitive market, unlocking the value of your customer, and understanding how you can maintain that customer’s loyalty, and indeed value, to your business is critical.  However, going beyond this, how can you look to increase the value of that customer, all whilst spending less to nurture that customer relationship?

The science bit

There is no great mystery here. Practically speaking, the way to calculate the overall value that a customer brings is to utilise a great, but seldom used, metric in the customer service industry called Customer Lifetime Value (CLV). You may or may not have come across this term, but ultimately it lets you quantify the value of a customer to an organisation through one simple equation, which is as follows:

CUSTOMER LIFETIME VALUE = (Customer revenue MINUS support costs) MULTIPLIED BY (length of relationship MINUS acquisition costs)

The entire premise behind this equation is to look at the bigger picture. It isn’t just about the cost per call, or contact, it is about the customer’s overall value to an organisation – how much revenue they bring in over the course of their relationship. By understanding this better, organisations can – through consultants or directly - make informed decisions about changes that can be made to their operations to improve that all important customer lifetime value.

Altering the equation

There are a whole host of ways in which you can improve the value of the customer. Ultimately, you should be looking to boost topline growth, whilst improving contact centre efficiency and the overall customer experience:

Topline growth – this figure can be driven up by focusing on increasing customer revenue. Any organisation that drives substantial customer revenue is proactive, connected and responsive. These are the organisations that connect with their customers and engage them at every touchpoint. They respond to customers’ concerns, criticisms and praise and they proactively make changes to improve operations. All of these factors in turn increase sales, improve market share and boost customer retention.

With customer revenue increased, you then need to focus on lowering the support costs through making contact centre efficiencies.

Contact centre efficiencies – Looking more closely at the contact centre and driving efficiencies here can reduce the overall support costs per customer. This might be achieved by reducing pressure on the contact centre by introducing a chatbot to filter out most customer queries. It may be through implementing a dedicated and automated call-back solution. It might be that you enhance your web presence to encourage users to self-serve. All of these changes will optimise the resources available to customers, reducing pressure on the contact centre, whilst exceeding SLAs and reducing the overall support cost. Moreover, customers will have access to a more streamlined process that increases their overall satisfaction with that brand.

Customer experience – improving the customer experience has a huge resulting effect on the length of time that customers stay engaged with a brand. Making sure the customer journey is seamless is critical here, as any bumps or friction are likely to encourage detractors. Understand your customers and what frustrates and pleases them about their journey. Use technology to enhance this level of understanding – through tools like sentiment tracking – and make changes to reflect this feedback. This is a process which should be continually reviewed, to make sure that the service you offer to your customers remains both current and relevant.

The whole principle behind enhancing customer lifetime value isn’t a secret, but oftentimes is overlooked. By taking a holistic view of customer relationships, companies can benefit from enhanced topline growth, improving customer experience, and making greater efficiencies within the contact centre – benefits, which in this competitive marketplace, should be well received.   

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