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Online Customer Communities: 5 Ways to Increase Customer Lifetime Value

Written by Joshua Paul | on November 28, 2012 at 8:55 AM

Are you missing opportunities to increase profitability?

When you hear about the ways that companies grow, the usual suspects get most of the press - more new sales, cutting expensive and reinvesting the difference in marketing, expanding into new markets, etc.

However, one of the most effective ways to grow your business is less hyped €“ improving customer lifetime value. Most organizations spend their finite resources on tuning their marketing and sales funnels and putting out customer fires, rather than seeking ways to increase the profit they get from customers once they make a purchase.

The customer lifetime value measurement refers to the net profit that comes from a customer over the span of their relationship with your business. It can be measured along individual customers, as well as averaged across all customers or a specific segment. Tracking customer lifetime value (CLV) helps build a business culture around treating your customer relationships like an asset.

Online CUstomer Communities - Customer Lifetime Value

Most companies that track CLV use it to identify the levers that they can pull to improve their performance. For instance, are your costs of acquisition (sales and marketing expenses) too high and causing your CLV to be negative?

Here is an example using the basic model above:

$2,000 (Lifetime Revenue)

- $200 (Operating Expenses)

- $700 (Cost of Acquisition)

- $500 (Implementation & Delivery Costs)


$600 (Customer Lifetime Value)

In this case, if senior management is not satisfied with a customer lifetime value of $600 per customer, the have options:

  • Increase lifetime revenue by selling additional products or services
  • Increase lifetime revenue by extending the life of the relationship (for reoccurring revenue models)
  • Decrease operating expenses
  • Decrease cost of acquisition
  • Decrease implementation or delivery costs

The most attractive option for a specific company will depend on which lever is most easily moved at that organization at the lowest cost. Side note: The components of customer lifetime value are also interconnected. For instance, you can decrease your customer service investment, but you risk also decreasing the lifetime revenue is customer satisfaction goes down as well.

Companies measure their average customer lifetime value over time to determine the overall health of the company. Is your CLV steady, rising, or falling? While many businesses with reoccurring revenue, such as SaaS technology companies, rely heavily on CLV to drive the valuation of the company, any business can benefit from tracking and finding ways to improve their average customer lifetime value.

Private online communities have emerged as the Swiss army knife of improving customer lifetime value. Your online customer community can impact a wide variety of performance metric tied to the lifetime value of a customer.

Here are 5 ways to use your online customer community platform to improve CLV:

Tip #1) Know Where Your Customers Are in Their Lifecycle

What would happen if you communicated with a new customer like you do to a customer who has had a relationship with your organization for 10 years? Your messages would make assumptions that could lead to missed engagement opportunities and potentially damage the relationship with the new customer.

Use community profile data, security groups, and the built-in email engine to segment your customers' experiences in your online community. This provide the information, experts, and engagement opportunities each customer needs at their given stage in their lifecycle.

Tip #2) Know What Your Customers Need

It is difficult to maintain a relationship that is productive and valuable in the eyes of your customers without knowing what you customers want out of the relationship. It is also hard to keep busy customers engaged in your community without having an understanding of the problems that are most important to solve.

Create an ongoing dialog with your customers using the discussion groups in your online customer community to collect data about your customers' problems. In addition to discussion forums, utilize the polls and surveys in your online community to confirm and prioritize customers' needs.

Bonus Tip: Be Proactive

As I mentioned in the introductions, online customer communities give organizations a unique opportunity that very few other strategies can deliver. By combining behavioral, demographic, and transactional data in your CRM system, you can derive who your customers are, what they are looking for, and how they feel about specific topics or products.

You can then use this knowledge to proactively address concerns, capitalize on opportunities, and solve problems for your customers before they even need to reach out to your organization. All of these combined will highlight the importance of the company behind your product or service. Using your online customer community in this way makes that relationship just as much of a vital part of doing business with you as your product or service.

Tip #3) Increase the Value of Each Customer

In a recent episode of Socious' social business web series, ProCommunity, customer relationship expert, Barton Goldenberg, spoke about how organizations use private customer communities to couple existing customers' activities with their purchase profiles to identify additional sales opportunities.

A social CRM strategy that includes private online customer communities enables companies to monitor customers' social behavior for buying signals such as participating in discussions about product add-ons, browsing options for training and other services, and accessing files or videos about solutions that they don't yet have.

That data can be used by your sales, marketing, and customer care teams to have discussions with your customers about additional needs. These data-driven conversations have a higher likelihood of resulting in additional sales than messages build on basic demographic segmentation.

Tip #4) Extend the Length of the Relationship

Customers continue to do business with you company because you solve an important problem, that they are willing to pay to have solved, in a unique way. While your products and services deserve the bulk of the credit, your online customer community plays a significant role in providing exclusive value to your customers.

Finding answers quickly, being able to turn to an active user community for support, and helpful content that customers won't be able to find anywhere else is a major part of customer loyalty, as well as building a vibrant community. The exclusive value that is at the center of your customer community strategy lengthens the time that your customers do business with you and increases customer lifetime value.

Bonus Tip: Offer Advanced Engagement Opportunities

Just because certain customers love you doesn't mean that opportunities don't exist to strengthen the relationship and improve customer lifetime value. Further ingrain your best customer in your community by turning them into customer advocates.

Use the tools in your online customer community to provide additional engagement opportunities. Examples include asking a customer to help lead a product advisory group for a period of time or recruiting them into your customer reference program where they can answer questions from potential customers in the prospects-only groups in your online customer community. This will both expand your relationship with certain segments of customers, as well as leverage existing customer relationships to bring in new business.

Tip #5) Decrease Costs of Getting and Keeping Customers

Due to the wide range of features and flexible configuration options that come with enterprise online customer communities, your business has a host of ways to decrease costs associated with managing and servicing your customers.

Online customer communities can significantly lower the costs of onboarding and supporting customers by promoting peer-to-peer support, building segmented new customer areas into the community, and enabling partners to answer customer questions. Keep in mind that you can only decrease support, implementation, and customer acquisition costs if you first build an active and sustainable online community.

Online Customer Community Takeaway

You'd be hard pressed to find a way to impact as many CLV levers as your online community strategy. From extending customers' relationships to finding opportunities for additional sales to controlling costs, there is a direct correlation between the way that your online customer community can monitor and strengthen customer relationships and the activities that will move the dial on the components that make up the customer lifetime value metric.

Take a hard look at the costs of strategies and technologies that your company is using today to increase customer lifetime value. Then, evaluate whether your organization would realize a higher ROI using a unified customer community platform that can impact multiple components of CLV, rather than managing and supporting initiatives that hit on only one or two levers.

Download your free guide to buying and implementing a customer portal.

Topics: Online Community Management, Customer Communities, Customer Success, Online Community

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