Lifetime value is what you expect a client to spend with you over the course of your relationship. Let's assume a large client has a lifetime value of $1,000,000. To reach that number, your client could spend $100,000 with you each year for 10 years. Avoiding churn is one way to achieve this with their clients; however, it is just the first step in maximizing lifetime value. By refocusing on increasing revenue, sales organizations can use a strategy that increases the lifetime value of their clients—especially large clients.
In order to increase lifetime value, you first must keep your clients and reduce churn. Here are ten fundamental strategies to do that:
- Excellent customer service
- Great product or service
- Meaningful loyalty programs
- Competitive prices
- Excellent communication
- Appreciation strategies
- Well-trained employees
- Ease of doing business
- Helping clients with the answers they need
These 10 strategies will help you keep your clients, but increasing lifetime value requires other, more valuable strategies. It's one thing to retain a client for a couple additional years, but it’s quite another to have a client spend more with you each year. There are two major strategies that will increase a client’s lifetime value. Both of them help you create new value for the client, which not only increases what the client spends, but also works as perhaps the best retention strategy available.
How to Increase Lifetime Value of a Client: The Maturity Model
One tool to increase revenue and lifetime value is a maturity model. To execute this strategy, you can use a conceptual framework that starts with an unfortunate outcome you might call laggard. Even though the client is producing an outcome, they are nowhere near the results they could produce if they moved up to a greater level of maturity. Let's call the next level good enough. Moving your client from laggard to good enough requires them to add something that you provide, increasing what they are spending. But there’s no need to stop there. You can create a third level, which I call best in class. To get here, the client can make additional changes and improve their results. Finally, if you have a plan and a maturity model that allows for it, your client can get the final level, bleeding edge, where they’ll win awards for the results you help them achieve.
We went from laggard to bleeding edge in a single paragraph. We have now provided the client with everything they need to be world class. In doing so, they spent more money with you. Each year at a higher spend increases the lifetime value of the client.
Increasing Lifetime Value of a Client: Land and Expand
Let's imagine you have a great number of different products and services. Some salespeople sell one group of products, while other salespeople sell something different. The salesperson who first acquires the client has done some hard work. This wonderful client is spending a decent amount of money on one product, but their organization has other people who need different things. The salesperson who landed the client may sell anything and everything their company provides. Here, the salesperson has the contacts and contract to expand the relationship—and the lifetime value.
In other sales organizations, a specialist is required to sell certain products or services. When this is true, the first salesperson has created the first chunk of the client’s lifetime value, while their peer increases it. At this point, we must address the elephant in the room. Let's name this elephant "Don't you dare lose me my client." The salesperson who created the first deal is often afraid that the second salesperson will botch things up, causing them to lose the whole client. Assuming all goes well, increasing the lifetime value of the client will help their client, each salesperson, and both companies. To get there, it’s important you do what’s right, meaning you ensure good communication and build new value.
Why Lifetime Value Declines
If you fail to create new value, you will find your client’s lifetime value falling. One of the biggest mistakes salespeople make when a client explores other options is pointing at their history of performing. Unfortunately, the new kid in town is promising new value instead of the same old thing that the incumbent tries to rely on to keep the account.
It isn’t easy to create new value and maintain it over long periods. You must find novel ways to create value beyond what your client is already experiencing. You must also have relationships at all levels. At some point, your stakeholders will ask you, "What's next?” When you have nothing novel to offer, you have run out of new value. This creates an opening for a competitor to replace some or all of what you sell to your clients.
From quarter to quarter and year to year, you continually improve something for your clients. The longer you can run this race, the greater the lifetime value of the client. What is true for you is true also for your competitors. When they feel entitled or complacent, they leave an opening for you to create new value and steal their client.
Lifetime value may be one of the most underestimated metrics for growing revenue. No matter your strategy, you will improve your results by increasing revenue with clients you serve for many years.