Boost customer lifetime value with customer satisfaction

After years of working to grow subscription businesses - with much trial and error - we have accumulated a unique knowledge of how to boost customer lifetime value through customer satisfaction.

So let’s start with a question: When was the last time you looked at your Customer’s Lifetime Value?

Let's recap. What is Customer Lifetime Value? 

Lifetime value (LTV or sometimes referred to as CLV or TLV) is like a heart monitor – it shows the health of your subscription business. It measures the total revenue generated over the “lifetime” of a customer. The longer customers use the services or products and the more you can upsell, the greater the lifetime value. 

LTV is the key performance indicator (KPI) companies should use to make many of their key decisions, such as marketing budget, resources, profitability, and forecasting. 


Calculating Lifetime Value

LTV has no linear application and depending on your needs and the complexity of your business, the formula can be very different. 

However, one of the simplest ways to calculate LTV is to multiply the average revenue a customer (ARPC) generates over a given period of time (usually monthly or quarterly) by the average length of the contract (ALC). The formula for calculating LTV is: LTV = ARPC X ALC

The other simple formula is based on the average profit per customer and the company’s churn rate over a certain period of time: LTV=APPC/ Churn. 

To go deeper into nuances of how to calculate LTV accurately we should write another article, but no matter how you calculate it, to optimise LTV your business will need to focus on these three areas:

  • Customer satisfaction
  • Churn
  • Average revenue per customer

Put customer Satisfaction at the centre of your business

Customer satisfaction indicates the quality of your customer experience. Across our work and after many years of experience, we have seen customer satisfaction to be the key driver of increased customer lifetime value.

No matter how well you execute the rest of the business if your customers are not satisfied you are destined to fail. 

For each business, the right formula for exceptional customer experience will be different, but here are key actions we have seen to be effective.  

implement flawless customer service

“At Bette Box we turned hundreds of unhappy customers into fans just by providing great customer service” – Anna-Riitta Vuorenmaa, the CEO at Brandcrafty. 

Bette Box (a beauty subscription box from Finland) clients were the type of consumers that would reach out if there were any negative experiences, which is why it was highly important that we made sure to address their concerns immediately. 

The Customer Satisfaction team was empowered to go above and beyond to address customer concerns. We could send them apology chocolate with their next box or even a handwritten note. As a result in many cases, we managed to flip these customers from being extremely unhappy into being our brand advocates. 

While negative experiences can’t be avoided, what matters is how you deal with them. Such interactions with customers should not be seen as the end of their journey but rather as an opportunity to connect and build stronger relationships. Don’t make your customer wait, empathise with them and go that extra mile to make them happy – these are the pillars of exceptional customer service. 

And remember it costs five times more to acquire a new customer than to keep an existing one, so it’s a no-brainer that investing in customer support not only pays off but retains recurring revenue. 

Manage Subscription Fatigue

Subscription fatigue is a very real challenge for a recurring revenue model. It happens when customers lose interest in your product or service and as a result, get tired of paying for it. According to McKinsey, almost 40% of eCommerce subscribers end up cancelling their services due to subscription fatigue

When almost every other customer is at risk to cancel due to fatigue, you need to develop a strategy on how to keep customers engaged and interested. 

The first and probably the most important step is to have a deep understanding of your customers and their needs. Is your product or service adding value to your customers’ lives over time? What problems are you solving for your customer and how do they differ between different target groups? Are you engaging enough with your customer and using the right channels and messaging?

“One of our customers was struggling to improve the acceptance rate of in-app push notifications. To develop new communication concepts we had to understand users and their behaviour. By interviewing customers and listening to them, we were able to develop new messaging prototypes targeted for different user groups to boost their push notification acceptance rate,” explains Maija Golubovica, partner at Brandcrafty. 

By having a clear understanding of your users and building your service around their needs you ensure a better user experience and, hence, lower the risk of subscription fatigue.  

Keep you customers engaged

Buyer’s remorse is a very real problem for subscription businesses. So, how do you make sure that instead of losing a customer’s interest early on, your customer gets increasingly excited about their purchase decision?

It is typical for physical product subscription boxes to keep customers waiting for a few weeks before they receive their first order. This waiting period is risky. If the wait is too long and inactive a customer may lose all interest and churn in the early days. However, if you play your cards well and keep the relationship active and customers excited, the waiting period may result in a very delighted customer.

Onboarding is the first interaction a customer has with your service after the purchase. Just like in life, first impressions count in building long-lasting relationships – and one tip we give to you here is to use data to personalise your onboarding process. A well-built onboarding process helps you set customer expectations and show customers that they are taken care of.

“At Nordul we created an onboarding process through emails. The goal was to keep our customers engaged before they received their first box of personalised supplements. We built email automation with insightful content about each supplement they were going to receive in their package, educating the customer at the same time as building excitement. Through the expert content we created, we were able to build trust and a greater brand equity,” explains Maija.

On the other side of the coin, and equally important, is to keep customers engaged in between orders. “At Bette Box we used teasers to keep customers curious about their next box. We communicated the teasers through email, social media, and ads and were able to create some level of FOMO,” describes Anna-Riitta.

For digital products and SaaS companies, the focus should be on building a personalised and thought-through onboarding process. Your ambition should be a seamless and streamlined onboarding process, to introduce them to your product or service, as well as build excitement and knowledge.

A curated collection of walkthrough guides and interactive how-to videos will not only help you onboard customers quickly and set expectations, but it will also take their customer experience further than another “day another dollar” to being a trusted partner, who is there to help them succeed.

Ensure great order measurement and delivery measurement

This applies to physical product subscriptions. E-commerce consumers are expecting fast and easy shipping. It is also the last impression customers have of your brand – if it’s a bad experience it can be a big enough reason for them to churn.

When it comes to shipping, it’s always good to follow this rule: underpromise but overdeliver. It’s always better to be conservative with delivery times and deliver faster than disappoint customers with late deliveries.

This is why selecting the right delivery partner is essential. It’s equally important to have an efficient production process. You want to limit delays and if they do happen, it is crucial to learn about them in advance so you have time to communicate with your customers.

Now what?

There are two more pillars to LTV, which we will bring to you in the upcoming articles in this blog series. Stay tuned on how to increase average revenue per customer and how to manage your churn metric!

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