Free Customer Success Tool - Customer Success Metric Metric: Customer Lifetime Value (CLV or LTV)

Formula for Customer Lifetime Value (CLV)

CLV = Average Revenue per Customer (ARPC) × Customer Lifetime (in periods)

What CLV Includes

Recurring Revenue

• Revenue from subscription renewals or ongoing purchases.
• Example: Annual software licenses or monthly SaaS subscriptions.

Expansion Revenue

• Revenue from upselling or cross-selling additional products or features.
• Example: Adding premium features to an existing plan.

Retention Duration

• The average time a customer remains active and engaged with the product or service.

Why CLV Matters

Revenue Forecasting

• Helps estimate the long-term value of current customer relationships.

Prioritization of Accounts

• Allows CSMs to focus on accounts with the highest potential value.

Justifying Retention Costs

• Ensures resources spent on retaining customers are aligned with their revenue potential.

Growth Opportunities

• Identifies customers who can deliver additional value through upsells or renewals.

Key Drivers of CLV

High Product Adoption

• Engaged customers are more likely to renew, expand, and stay longer.

Retention Rates

• Higher retention rates increase customer lifetime and overall value.

Upselling and Cross-Selling

• Additional purchases or upgrades boost the total revenue generated by a customer.

Customer Satisfaction

• Positive experiences lead to stronger loyalty and longer relationships.

How to Improve CLV

Enhance Onboarding

• Ensure customers reach Time to First Value (TTFV) quickly, driving engagement from the start.

Build Long-Term Relationships

• Conduct regular check-ins and maintain alignment with customer goals.

Proactive Support

• Resolve issues promptly to avoid dissatisfaction and potential churn.

Focus on Expansion Opportunities

• Use insights like usage data to identify and present relevant upsell opportunities.

Monitor and Improve Engagement

• Use health scores and feedback to keep customers engaged and satisfied.

Tools to Calculate and Monitor CLV

Customer Success Platforms

• Gainsight, Totango, ChurnZero.

CRM Systems

• Salesforce, HubSpot to track customer data and calculate revenue potential.

Analytics Platforms

• Tableau, Looker for detailed revenue and customer lifetime insights.

Conclusion

Customer Lifetime Value (CLV) provides a powerful way for CSMs to understand the long-term financial impact of their efforts. By focusing on increasing retention, driving engagement, and identifying growth opportunities, CSMs can maximize CLV and create a win-win for both the customer and the business. Always monitor CLV to ensure retention strategies align with long-term profitability.