Top 5 Strategies to Increase Lifetime Value in My SaaS Business – WAU
It’s great to win a new customer. But it is even better to be able to keep it. This is especially true if you have a SaaS business. In this monetization format, the company wins with monthly customer subscriptions. That is, the longer they stay as subscribers, the better. But then how do you know how much profit you have […]
It’s great to win a new customer. But it is even better to be able to keep it. This is especially true if you have a SaaS business.
In this monetization format, the company wins with monthly customer subscriptions. That is, the longer they stay as subscribers, the better.
But then, how do you know how much profit you can expect from a consumer?
That’s what lifetime value (LTV) is for.
This metric will show you how much a typical user of your software will pay for the time they stay in your customer base.
The higher the LTV, the more profits you will have
But what can you do to increase it? That’s exactly what we’re going to focus on today!
Keep reading and find out how to increase lifetime value in your SaaS business and improve results!
What is the value behind customer retention
While there is nothing wrong with growing your customer base, it is essential to remember the real value of customer retention and brand loyalty.
Research from the social media management platform SumAll suggested the following:
25% to 40% of the total revenue from the SumAll chain’s most stable businesses comes from returning customers. Going further, fixed customers help companies cope with difficult economic times; companies with 40% repeat customers generated almost 50% more revenue than similar companies with only 10% loyal customers.
LTV is just the way to measure your customer retention and the value they are bringing to your SaaS company.
Increasing lifetime value means greater profits.
Considering that selling to a recurring customer has a lower acquisition cost (CAC), by focusing on existing customers, you are focusing on a strategy that gives your company much higher profit margins.
That is why this indicator appears to be the current favorite in the world of SaaS metrics, but it is not the easiest metric to implement and use.
A simplified formula generally accepted for LTV is as follows:
lifetime value = average revenue per customer ÷ churn rate
This formula is simple enough to calculate:
The average revenue per customer is reasonably straightforward, and you should be able to calculate the churn rate with various tools available on the market.
How to increase lifetime value
According to the definition above, these 2 metrics will affect your LTV.
Increasing the 1st or decreasing the 2nd will result in a higher LTV.
But what steps can you take immediately to retain your customers and increase the average amount they spend on you while keeping them satisfied with the product?
Following the 5 tips below:
1. Publish engaging content to increase LTV
A newsletter may sound like an old school trick, but it is also a great method for improving LTV.
“What do you mean?”, You can ask yourself.
First, a newsletter keeps your company in mind.
How can they forget about you when you keep sending regular offers via email?
Second, you can get even greater value from each newsletter by targeting customers.
A targeted email is much better than a generic email sent to a huge list.
Just having a newsletter, however, is not enough.
Here’s how you can make your messages truly valuable:
Strengthening the relationship with the customer → increased satisfaction → higher LTV.
2. Focus on customer success to reduce churn
Have you heard of the Cohort graph? If not, now is the time!
This is a spreadsheet that has a really useful function for your SaaS company.
It will show in which specific months of your customers’ relationship with your company there is a greater risk of losing them.
That is, if after 8 months of relationship you have high cancellations, the Cohort chart will allow you to see this clearly.
So, what can you do to increase lifetime value?
First, talk to your customers who are entering the 8th month and try to understand the problems they are facing or the goals they are not achieving with your product.
You can, for example, send an NPS survey regularly.
You will be surprised at the quality of feedback you can receive just by submitting a simple question.
Second, you can plan marketing actions for your customer base that is entering these critical months.
Who knows, a promotional discount, the offer of a new service or the sending of a series of exclusive contents through your newsletter?
If your CRM tool allows it, set up customer segments and information alerts to inform you when a customer enters a high risk of cancellation period.
You can even go a step further and contact them with an automatic message to start a dialogue.
Customer success focused → lower rate of cancellations in critical periods → higher LTV.
3. Scale your prices to increase account expansion
A great way for a SaaS business to increase LTV is to ensure that the pricing model allows the account to expand throughout its lifetime.
Price escalation is vital to success in any SaaS business.
The pricing structure must be designed to scale up or down, capturing small customers even those who are willing to pay more.
In other words, this strategy allows to reduce the entry barrier for smaller customers and still take advantage of the higher margins found at the corporate level.
You can scale your SaaS price based on one of several factors, usually:
- number of active customers;
- number of “seats” (operative) required;
- customer recurring monthly revenue; and
- infrastructure requirements (for example, cloud storage space).
The requirements for all of the above are likely to increase over time as the company grows.
If its price increases with the growth of its customers, this establishes the basis for the increase in LTV due to the healthy expansion of accounts.
Price escalation → higher revenue per customer → higher LTV.
4. Re-engage inactive customers to improve customer satisfaction
Chances are that there is a proportion of your customer base that has not been involved with your product for a frighteningly long period.
At this point, they basically turn their backs on your company.
Putting a reengagement strategy into practice can be a great way to get them to actively use your product again and gain value from it.
But what if these customers don’t really want my service and emails serve to remind them of that?
Yes, it can really happen.
And you can see an initial spike in your churn rate when you put this tip into practice for the first time.
But by avoiding this, you are only fooling yourself about inactive customers.
If all it takes for them to cancel their service is a reminder that they are still signed up, they are simply inflating their revenue – without bringing real value.
In the long run, actively keeping all your customers engaged is much more likely to lead to greater satisfaction and loyalty – which in turn increases LTV.
Re-engagement with content marketing → greater customer involvement → greater satisfaction → lower dropout rate → higher LTV.
5. Introduce premium features to motivate the upgrade
Another great way to drive greater account expansion is to attract customers to a higher price level, with the introduction of premium features that meet the needs of advanced users.
The best thing about this method is that there is a much lower risk of irritating customers by forcing them into a higher priced plan.
Those who upgrade actually choose to upgrade because they want the additional features.
Greater account expansion → higher average revenue per customer → higher LTV.
Lifetime value is mysterious. So, treat it carefully.
The secret is to calculate your LTV as accurately as possible.
Understanding this metric is important in determining a ceiling for your CAC.
If you underestimate your lifetime value, you risk not growing fast enough by trying to keep your CAC too low.
Likewise, if you overdo your LTV, you risk burning capital and acquiring customers who never generate profits.
As a rule, your SaaS company should aim to increase LTV to at least 3 times its CAC to be sustainable.
Enjoy the visit on our blog, check out our 7 conversion optimization tips for SaaS and keep learning how to improve your results!