One key to unlocking unparalleled growth and success in your B2B service business resides in maximizing your Lifetime Value of a Customer
Imagine a future where your business thrives beyond your wildest dreams. Can you picture your profits soaring, clients smiling, and competitors looking on in envy?
All of this is within reach when you unlock the secrets of skyrocketing your lifetime value of a customer, otherwise referred to as “Customer Lifetime Value” (CLV or CLTV) or LTV (Lifetime Value).
These are all just different abbreviations that refer to the same concept.
So, what is customer lifetime value and why should you care about this absolutely vital metric, for your B2B service business?
Customer Lifetime Value (CLV, CLTV, or LTV) is a metric used to estimate the total monetary value a business can expect to receive from a single customer over the entire duration of their relationship.
CLV helps B2B businesses understand how much revenue they can anticipate from a customer and guides them in making informed decisions on customer acquisition, retention, and marketing strategies.
It emphasizes the importance of nurturing long-term relationships with customers, as opposed to focusing solely on one-time transactions.
This is the “land & expand” approach, rather than the high churn “pump & dump” approach.
In this post, we’ll dive into a simple customer lifetime value formula for LTV calculation, and actionable techniques & tips you can start implementing or improving that will immediately boost your average lifetime customer value and optimize your B2B marketing and sales strategies.
There’s a limited number of levers you can pull to grow your business:
- You can acquire new clients (this opens the door to the next two opportunities)
- You can retain your existing clients for longer (increase lifetime value of a customer through strategic renewal offers, as one example)
- You can solve more problems for your existing customers through additional services and products you offer (increase the amount of money each customer spends with you)
It’s wise to focus on all three of these simultaneously and view each customer relationship through the frame of those 3 factors.
When you combine all three at the same time, and focus on improving each of those three areas, even with marginal improvement in each, you’ll experience faster growth than you previously thought possible.
In fact, when you’re in the process of acquiring new customers (e.g. your sales process), it’s a smart move to begin laying down the growth roadmap for your clients, to pave the way to increase your lifetime value of a customer, even before they become actual clients.
You can actually begin planting the seeds for longer retention, upsells, and cross-sells BEFORE they become a customer, during onboarding, and throughout their entire journey as your customer.
Yes, there are ways to do this elegantly, without being pushy or sounding like a used car salesperson.
…but that’s a topic for another post, or another video, another time…so stay tuned.
First, here’s how to calculate customer lifetime value for your B2B service business (simple LTV calculation method):
Step 1: Calculate the average revenue per customer (ARPC) for each pricing model.
To determine the ARPC, you need to evaluate your different pricing models (such as monthly subscriptions or one-time fees).
For each model, divide the total revenue generated by the total number of customers. This will give you the ARPC for each pricing model.
For example, if your business offers a monthly subscription service and a one-time fee service, calculate the ARPC for both:
- Monthly subscription: Divide the total revenue generated from subscriptions by the total number of subscription customers.
- One-time fee: Divide the total revenue generated from one-time fees by the total number of one-time fee customers.
Step 2: Determine the average customer lifespan (ACL) for each category.
The ACL is the average length of time a customer continues to use your services.
To calculate the ACL for each pricing model, divide the sum of all customer lifespans by the total number of customers in that category.
For example, in your monthly subscription category, add up the number of months each customer has been subscribed, and then divide by the total number of subscription customers. Repeat this process for the one-time fee category.
Step 3: Multiply the ARPC by the ACL for each category to obtain the customer lifetime value (CLV).
Once you have the ARPC and ACL for each pricing model, multiply them together to calculate the CLV for each category.
- Monthly subscription CLV: (ARPC for monthly subscriptions) x (ACL for monthly subscriptions)
- One-time fee CLV: (ARPC for one-time fees) x (ACL for one-time fees)
Step 4: Calculate the weighted average of the CLVs from each category.
To determine the overall average CLV for your B2B service business, calculate the weighted average of the CLVs from each pricing model.
To do this, multiply the CLV of each category by the proportion of customers in that category, and then sum up the results.
For example, if 60% of your customers are on a monthly subscription and 40% pay a one-time fee:
- Weighted CLV = (0.60 x Monthly subscription CLV) + (0.40 x One-time fee CLV)
Now that you know how to calculate customer lifetime value/LTV calculation, let’s delve into some of the often overlooked, sometimes counterintuitive techniques to grow your B2B service business by increasing your average lifetime customer value:
Tip 1: Leverage B2B partnerships for mutual success
Imagine how collaborating with other B2B service providers could unlock new growth opportunities.
By establishing strategic partnerships, you can offer complementary services, co-market, or share referrals, expanding your client base and boosting your CLV in the process.
To execute this strategy:
- Identify potential partners that share your target market but don’t directly compete with you.
- Develop a clear value proposition that demonstrates the mutual benefits of the partnership.
- Approach potential partners with your proposal, emphasizing the value you bring to the table and the potential growth both businesses can achieve.
- Forge a written agreement that outlines the terms of the partnership, responsibilities, and goals.
- Collaboratively create marketing materials, content, or events that showcase both businesses, reinforcing the partnership and driving results.
- Regularly review the partnership’s performance, adjust strategies as needed, and maintain open communication to ensure continued success.
Tip 2: Create irresistible upsell and cross-sell offers
Picture your clients enjoying valuable additional services that not only increase their satisfaction but also your CLV.
Analyze your client’s needs and craft tailored upsell and cross-sell offers that address their pain points, positioning your business as their go-to solution provider.
This is what the whole “one-stop shop” value prop is based on.
Step into the consumer’s shoes for a moment.
Would you rather have to deal with 3 different companies to solve 3 different problems or would you prefer to deal with a single company that solves those 3 problems for you?
This is really key to increasing your CLV because the more problems you solve for your customer, the longer they will tend to remain your customer.
By solving more problems for them, you’ve become a more integral part of their business and created a more “sticky” customer relationship.
It’s harder for them to leave because they now have to either find 3 new providers or they have to find another company that solves all 3 problems.
This means more sales calls with new vendors, vendor offer analysis, etc.
I have a great relationship with the CPA firm I work with now. They solve multiple problems for SalesKey and me personally (bookkeeping, tax prep – both business and personal, tax planning, outsourced CFO services, they even connected me with a great wealth management group which solved another problem, among others, and have become a trusted advisor for all things related to business & personal finance, accounting, and taxes).
Needless to say, those are some critical functions for my businesses and personal life.
They do a great job (I worked with 2 CPAs before this group and I’m infinitely happier with my current CPA than the ones before, part of the reason is: They solve more problems for me than my previous CPAs. One of them I was practically begging them to take more of my money for outsourced CFO services, I didn’t know what it was called at the time but what I did know was that as we scaled there were things I didn’t know and needed a competent professional to advise me), so the last thing I want to do right now is to evaluate new CPA firms.
They will have my business forever unless something significant changes.
They do a great job – that’s the necessary ingredient. As long as you do an excellent job serving your clients WHILE solving multiple problems, they’ll stay with you indefinitely or until something out of your control happens like a key decision maker at your client company changes, etc.
Remember: Your customers prefer to get as many of their problems solved in one place as possible, so why not be that one-stop shop?
Even if you don’t offer the service directly, be a resource for your clients by referring them to vetted, high-quality providers that can solve other problems for them as a value add.
Be customer-centric, rather than product-centric. Also another topic for another post, another time 🙂
To implement this tip:
- Analyze your clients’ profiles and usage patterns to identify their needs and pain points.
- Develop a suite of complementary products or services that can be offered as upsells and cross-sells.
- Determine the best timing for presenting these offers, such as during contract renewals, onboarding, or after a successful project completion (e.g. when they are in a positive emotional state)
- Train your sales and customer success teams on the benefits of these new offerings and how to present them effectively.
- Monitor the success of your upsell and cross-sell campaigns, adjusting your approach as necessary to maximize results.
Tip 3: Invest in client success management
You might be surprised to learn that client success management takes customer service a step further.
By assigning a dedicated client success manager, you proactively ensure your clients achieve their desired outcomes with your services, resulting in higher satisfaction, retention, and CLV.
The key word there is “proactively”. As of the writing of this post, we’ve served over 400 clients in over 65 different industries. (and well over 150 niches within those industries).
When we dive into their sales process, which I repeat NEVER ENDS, we find a common pattern among struggling companies and strangely, even companies that are doing quite well (mid-8 figures and up).
They are not proactive in creating a growth roadmap, or a client ascension plan for systematically upselling and cross-selling their existing customers.
The smaller companies we serve are leaving a few hundred thousand dollars per year on the table in wasted opportunities, while the larger ones are leaving millions.
(Wanna see something weirdly interesting? Check out this Video “5600+ Interviews Later…The Most Common & Costly Sales & Marketing Mistakes B2B Companies Make (and How To Avoid Them)”
It blows my mind frankly because it’s far easier to sell more to someone who’s already bought from you than it is to make the first sale with a new prospect.
So, why neglect this key part of your process?
Some or all of the following: Complacence, laziness, they just don’t think about it, they can’t see the forest through the trees, and so forth.
To put this tip into practice:
- Establish a client success management team, responsible for guiding clients toward their desired outcomes.
- Assign a dedicated client success manager to each account, ensuring personalized attention and support. In many cases, having the salesperson who closed the deal initially, also manage the account, and act as a liaison between different departments in your company, gives them ample up and cross-sell opportunities
- Develop a structured onboarding process that sets expectations, establishes goals, and identifies opportunities for upselling and cross-selling.
- Implement regular check-ins and progress reports to keep clients engaged and informed, addressing any concerns or challenges promptly.
- Collect client feedback and use it to improve your services, demonstrating your commitment to their success.
Tip 4: Nurture long-term relationships with key stakeholders
Are you actively nurturing those relationships now? If not, can you see yourself developing strong relationships with key stakeholders at your client’s company and the impact that would have on the bond between you and your clients?
This approach leads to long-term loyalty and increased CLV. Engage with them on a personal level, understand their needs, and demonstrate your commitment to their success, solidifying your position as a trusted partner.
To build these relationships:
- Identify key decision-makers and influencers within your clients’ organizations.
- Engage with them through personalized outreach, such as emails, phone calls, or in-person meetings.
- Tailor how you communicate the value of your services and the questions you ask to the priorities, pain points, lingo, and vision of the key stakeholders.
- Understand their individual and organizational goals, priorities, and challenges.
- Offer tailored solutions and support that demonstrate your commitment to their success.
- Stay in touch with regular updates, share relevant industry insights, and celebrate milestones together.
Tip 5: Offer flexible contract terms and payment options
In the B2B service world, one size doesn’t fit all. By offering flexible contract terms and payment options, you accommodate your client’s unique needs and budget constraints, making it more likely they’ll stick around and increase their CLV.
Let me be clear, I’m not talking about allowing your clients to beat you up on price and you lower your price out of fear of losing the business.
I’m strongly against that practice, I think it sets the wrong precedent upfront, devalues your service, and can lead to all sorts of problems down the line.
For my entire career, I’ve always worked with companies that charge premium prices for premium services and sell based on value rather than low cost.
When you are a premium provider, you establish a fair price for what you offer and you stand firm to that.
When you have strong lead flow and a strong sales process, you have that freedom, to turn down clients who you can’t help see the value of your services or that are simply disqualified due to budget.
When you have weak lead flow and a non-existent, systematic sales process or a sales process with gaping holes in it, you’re in a weak negotiating position because you need the business too much and are much more prone to getting into those race to the bottom pricing conversations, which at SalesKey, we simply don’t entertain.
(For help with increasing qualified lead flow, boosting your sales pipeline, and materially improving your sales process, click here to book a Free B2B Business Growth Strategy Session with one of our Growth Advisors, who will provide you with a clear-cut roadmap for reaching your new client and revenue goals)
We know our numbers, and what it costs to provide a premium service, we ensure that the value of our services far outweighs the investment made by our customers and if we can’t help them see that, or the prospect is simply looking for the lowest cost provider, we encourage them to look elsewhere (kindly of course).
What you can do is create unique offers that are customized to fit your client’s unique situation.
For example, you can offer discounts to customers who commit to longer-term contracts for your services or that purchase a bundle of your services that are tailored to your client’s specific needs.
You can make renewal offers that are very enticing to existing customers who have completed their initial contract with you because you should have enough margin left to allow for an enticing discount if your client renews for a longer term after the initial contract.
When you average out the net profit from the initial contract and the discounted, longer-term renewal contract, it should still be a win/win.
To implement this flexibility:
- Review your current contract terms and identify areas where customization can be offered, such as contract length, service levels, or additional features.
- Create a range of payment options, including installment plans, discounts for early payment, or customized billing schedules.
- Offer discounts based on contract length in tiers, the longer the client commits, the lower their price.
- Train your sales team to negotiate and customize contracts based on client’s needs, ensuring they have the authority and flexibility to close deals effectively.
- Monitor client satisfaction with contract terms and payment options, using feedback to inform future adjustments and improvements.
By embracing these five unique, actionable tips and techniques, you can immediately start increasing your average lifetime customer value and revolutionize your B2B marketing, sales, and business growth strategies.
In conclusion, one key to unlocking unparalleled growth and success in your B2B service business resides in maximizing your Lifetime Value of a Customer.
By employing these powerful, proven strategies, you’ll not only strengthen client relationships but also differentiate yourself from the competition, paving the way for long-term success.
The time to act is now – seize this opportunity to optimize your B2B marketing, sales, and business development strategies by embracing these proven techniques.
As you watch your average customer lifetime value soar, you’ll experience the profound impact it has on your business, propelling you to new heights and securing your place as a leader in your industry.
So, you can either not take action on what you’ve just learned and keep doing the same thing and getting the same result or you can embrace these tactics and elevate your B2B service business to its full potential starting right now.