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How to Improve Customer Lifetime Value Using Your Online Customer Community Platform

Written by Joshua Paul | on December 9, 2014 at 8:30 AM

Most companies invest big bucks to build their customer base. Unfortunately, while spending large amounts to acquire new customers, many organizations often make the mistake of paying less attention to the customers they already have.

Despite customers costing significantly more to acquire than retain "five to ten times as much," according to Bain and Co. marketing strategies still tend to focus predominantly on new customer growth.

How to Improve CUstomer Lifetime Value Using Online Community Software

Many businesses are creating private online customer communities to improve their customer lifetime value due to scalable ongoing engagement capabilities of these platforms. This allows businesses to focus on closing new customers while maintaining a strong relationship with the ones they already have.

Before we get into how to leverage your online customer community to improve customer lifetime value, let's start with the basics.

What is Customer Lifetime Value?

Customer lifetime value (otherwise known as CLV, CLTV, LTV, or LCV—but for our purposes, we'll stick with CLV) refers to the amount of profit your company can stand to gain throughout the entire duration of your relationship with a single customer.

Essentially, CLV attempts to predict how much revenue you can expect from a customer for as long as they stay a customer when you subtract out the cost of acquiring the customer, serving that customer, and delivering your product or service.

How to Improve Customer Lifetime Value

Companies often view the average CLV as a key performance metric that they target and track monthly or quarterly.

The challenge with discussing how to improve your CLV is that most strategies don't start with the tangible levers. Instead, they focus on pie-in-the-sky ideas and vague tactics that don't address the specific metrics at hand, such as connect with your customers on Twitter, or raffle off an iPad each quarter to customers who attend training.

Sure, running crazy giveaways or campaigns will probably get your customers' attention. But will it really do any good to build stronger relationships in the long run?

What Impacts Customer Lifetime Value?

If we're going to discuss CLV, we're going to do it the right way. When it really comes down to it, there are three primary levers that you can pull to drive lifetime value within your existing customer base:

Lever #1) Keeping Customers Longer

This comes down to simple customer retention. The longer that your customers do business with your company, the more revenue they will spend as they renew contracts and extend license agreements.

However, improving customer retention is anything but simple in most cases. Along with ensuring that your product or service generates the expected results for your customers, there are a variety of other factors that lead to customers remaining customers.

Lever #2) Increasing Average Selling Price (ASP) Per Customer

Ideally, you aren't just keeping the customers you already have, you're trying to sell them even more products and services. Most companies take an up-sell or cross-sell approach to get customers interested in the next best product or compatible products to what they already purchased.

Common examples of increasing revenue opportunities including coupling professional services with your product, selling add-on products to your existing customer base, and providing an upgrade path to more lucrative solutions.

Lever #3) Lowering the Cost to Serve

By reducing the amount it costs to serve and support customers, you can increase your net profit per customer. However, keep in mind that it's important to not lower costs at the expense of good customer service and your customers' ability to generate expected business outcomes from your solution.

You can learn more about how to calculate customer lifetime value here.

Now, you might be wondering how your online customer community platform comes into play with these three levers. Let's dig in.

How to Leverage Your Online Community to Increase Customer Lifetime Value

The structure and various features of your online customer community can actually address all three CLV levers, creating higher customer satisfaction and bringing more value to your business.

Here's how we see it done most often:

Keeping Customers Longer

Offer Better Contextual Customer Support

Customers will have more access to tips, tricks, and experts within your online community than they would with traditional customer management approaches. With better support and product training, you'll reduce their learning curves or potential frustrations during the onboarding process.

Your customers will also get the unique opportunity to connect with other customers and experts to get questions answers and learn how they're using their product.

In our experience, customers get more in-depth answers to questions in online customer communities than they do with traditional "you ask, the company answers" support channels. Since the customers and partners that are answering the questions in your customer community have been in the shoes of the person asking the question, they are able to read into their challenges and incorporate that context into their response.

In addition to learning from their peers, customers might even get the chance to help other community members. This peer-to-peer sharing and consistent support network fulfills many of the elements that drive customer retention.

Create Loyalty Through Value and Differentiation

An active customer community is a strong differentiator in most markets. The exclusive content, discussions, and access to experts are things that your competitors will have a hard time replicating, even if your products are similar.

Your customers might also find themselves growing attached to the social bonds and connections they're forging. Often, even if customers are discontent with a decision that your company has made or struggling with your product, they won't want to give up their access to valuable content and interactions with other customers, partners, or people inside the company.

Help Customers Generates Better Business Outcomes

The ongoing support, personalized resources, and proactive outreach that your online customer community provides help your customers navigate every phase of their relationship with your company and your products from getting started to overcoming roadblocks.

Most importantly, customer communities play a central role in advising customers on how best to use their investment to get the business outcomes that they want. Your customers purchase your products or services for a reason. Help customers take advantage of the content, discussions, and advice from peers in your community to make sure that they get those results.

Shape Customer Perception

When your company provides an online community to your customers, you own the airwaves. The platform provides your business an opportunity to shape customers' perceptions on a variety of matters—from how they view your products and organization to how they see your industry and the value that your company brings to it.

In addition to shaping the conversation through content and conversations, your online community allows you to monitor customer perceptions so you can be proactive about any issues that arise. You can identify particular customers who might be considering a change and reach out to them personally.

Let Customers Know Their Voice Is Heard

Creating a platform where there is the opportunity to discuss concerns and provide feedback helps customers feel like they have a voice and that you are listening. Through your online community software's discussion, survey, and product enhancement tools, you will be able to provide plenty of opportunities to capture customer feedback.

Then, you can leverage personal outreach, as well as built-in email, blog, and other communication features to assure customers that you hear their requests.

Keep Customers Engaged

Highly engaged customers are critical for customer retention. Set up your online community to provide a host of engagement opportunities for your customers. You can go about it in three ways:

  1. Content—Exclusive guidance and info about your products/company
  2. Conversations—Discussions with other customers and partners
  3. Connections—Access to experts or key company personnel

By getting customers to consistently convert on relevant engagement opportunities they will be more informed and responsive to your messages and calls-to-action.

Increasing Revenue or ASP Per Customer

Increase Conversions on Offers

As customers learn about new products, add-ons, training, or professional services through their participation in your online community, they are more likely to open your emails, return your calls, and read your announcements.

There is a direct connection between customers being more engaged and informed and customers' willingness to convert on offers to learn about a new product, consider an upgrade, or find out how new services can benefit them.

Combine Social Community Data with Traditional CRM Data

The way that your customers behave within your customer community allows you to learn more about them. For instance, which videos they watch and the discussion that they participate in provide valuable information to your company that helps you to identify your target audience for upselling, upgrading, or add-on offers.

When you know more about your customers, you can provide content and communication directly to their interests. You can even use the social data in your customer community to help account managers determine who to contact directly and which new products or services to talk to customers about.

Lowering the Cost to Serve Customer

Create a Centralized Experience

Your customers don't want to navigate to multiple places and remember an array of passwords to access the resources they need to be successful with your solution.

Often companies will have support forums in one place, tips in another, and updates from the company in yet another. Aside from a choppy customer experience, this common scenario does not help make customers aware of all of the resources available to them, rending major parts of your customer service strategy less effective.

By bringing together support documentation, access to other customers, customer account information, and training events in your online customer community, you can creating habits among your customers to take advantage of specific support options. The example we see often is one where companies want customers to use self-service support options before contacting the company because it is less expensive.

Providing a one-stop-shop for customers to get answers to their questions and learn more about how to get results with your products or services increases the effectives of the support infrastructure that you have worked so hard to put in place.

Decentralize Support Operation Costs

Leverage the peer-to-peer support and the user-generated knowledge base that your community's discussion forums create to reduce your reliance on only using call centers and paid employee support. What would it mean for your company if 15% of your customer support questions were answered before they reached the phone-based customer service representative?

Additionally, in online customer communities, customers answer others customers' questions and share ideas in blog posts, documents, and videos. This decentralization of production from your support staff to your customers and partners lowers the cost of creating support documentation.

Customer Lifetime Value Takeaway

While acquiring new customers is important, improving your CLV can cost your company less and increase your profits significantly in the long run. According to Bain and Co., boosting retention rates by just 5 percent can actually raise profits by 25 percent to 95 percent.

It is important to understand the three main levers for improving CLV—retaining customers, lowering costs, and increasing ASP per customer—and how they can all be addressed by a highly engaged online community of customers, partners, and employees.

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