Benchmarks and Best Practices to Improve Customer Lifetime Value


  • Most businesses measure customer profit, but that's a backward-looking historical metric. Customer Lifetime Value (CLV) is a predictive analytic that forecasts future value.
  • CLV is a leading indicator of customer retention and revenues. It's an efficient and highly effective measure of a company's relationship with its customers and future revenues and profits.
  • It's measurement also tends to help recognize customer relationships as assets, reposition customer focus from short-term profits to long-term lifetime relationship value, and compliment other customer-centric measures such as customer satisfaction and loyalty.
  • It is influential because even small increases multiplied by the number of customers creates large revenue growth.
  • CLV is important because it answers the essential customer support question of: How much should the company and contact center spend to service and retain each customer?
Johnny Grow Revenue Growth Consulting

Customer Lifetime Value Benchmarks

Comparing CLV as an absolute value among companies is not that helpful because companies sell their products or services for different amounts, making it inaccurate to suggest that a company with a higher CLV outperforms a company with a lower CLV.

However, three CLV-related metrics did separate performance among archetypes. The Best-in-Class Customer Service Leaders stood out in three ways.

First, they actively measure the lifetime value of customers. That measurement provides a baseline and trending that correlates to customer service excellence.

Customer Lifetime Value Benchmark Measurement

Second, they use the CLV metric to determine levels of customer investment (i.e., entitlements, SLAs, premium services.)

Customer Lifetime Value Benchmark Investment

Third, they use this measure to implement performance improvement methods to increase customer value.

Customer Lifetime Value Benchmark Improve

Best-in-Class customer service organizations were 3X more likely than their lower performing peers to implement targeted programs and services to improve Customer Lifetime Value.

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Customer Lifetime Value Defined

There is no single dimension that defines a customer's value, but CLV comes pretty close.

Customer lifetime value is equal to the present value of the future cash flows attributed to the customer during the entire relationship with the company. Some companies will present CLV as a revenue figure. Others will deduct customer related expenses, such as customer acquisition costs and cost to serve, and present CLV as a profit figure. We generally recommend the later. Either way, CLV is a projection for what each customer is worth to the company.

Also recognize that customers may be worth more than just their purchase dollars. For example, an additional factor when calculating CLV is referral value. Referrals which result in new sales should be reflected in the customers' value.

CLV is a forecast so its subject to some variation. One way to reduce variation is to calculate it by customer segment. More granular calculations are particularly valuable if you sell a broad spectrum of products.

Why This is so Important

In the aggregate, CLV is an indicator of customer health, customer satisfaction and revenue growth. For individual customers, this measure guides how much investment should be made to serve and retain the customer. When customer value is calculated for each customer segment, the company or contact center more accurately invests in account management and customer services.

Only when contact center managers know this important metric can they answer some essential questions.

  • How much should we spend to service and retain each customer? By customer or customer segment?
  • How do we reduce spend for unprofitable customers? Or alternatively, how do we make unprofitable customers profitable?
  • How will call center improvements or additions to customer service increase the lifetime value of each customer?
  • How much should be invested to grow CLV? So as to prevent spending more than will be recouped.

The reality is most call center managers don't know the answers to these questions. Most managers spend a fixed amount on customer service. That amount is based on an annual budget, aligned more to cost management than payback, and distributed among customers based on customer demand.

The research shows the Best-in-Class contact center leaders take a different approach. They invest the amount needed to achieve a targeted ROI and allocate the investment based on customer segments.

That means the customers that contribute the bulk of the company's margins and profits get more investment than low profit or nonprofitable customers. That does not mean that nonprofitable or low profit customers don't get served. They do. But pursuant to lower cost customer support channels such as online knowledgebases, virtual agents and other self-service channels, designed to serve these customers and improve customer profitability.

Until you can answer the above customer service essential questions you will not optimize your investments nor your ROI. Nor will you maximize customer value.

Challenges to Increasing Customer Share

The top challenge standing in way of answering the essential questions is information. Most companies don't act on CLV because their CRM software system doesn't calculate it in the aggregate, by segment or for each customer. They are simply without this important metric.

The challenge is exacerbated for call centers that don't have a central, single view of customer information. Instead of a 360-degree customer view, customer data resides in several disparate applications

In a research report titled, Gauge Your CRM Maturity and published on CustomerThink, Forrester CRM analyst Kate Leggett shared, "We found that sales, marketing, customer service, and tech organization professionals top two challenges were related to CRM: creating a single view of customer data and information (64%) and creating customer insight to drive decision making (53%)."

Fortunately, adding a CLV score to each customer record is not a difficult task. However, it should be done pursuant to defining what actions to take based on the value.

Customer Lifetime Value Best Practices

  • Before you can increase customer value, you need calculate CLV by customer segment and for each customer and insert this metric to the customer record so it is available for information reporting and workflow processing; and so it can be acted upon.
  • Advancing from static to dynamic customer segmentation will enable more accurate, timely and contextual communications, support services and customer experiences.
  • Before you invest to increase customer value, use customer lifetime value benchmarks to objectively forecast the financial uplift. This will prioritize investments by ROI and tell you how much investment delivers the most payback.
Customer Experience Predictive Analytics
  • To grow customer value, you need to know what customers want. Customer intelligence provides the insights to understand customer behaviors, top priorities, buy criteria and what it takes to grow customer share.
Customer Insights

Customer behaviors can be acquired by harvesting digital footprints and using data to create customer segments, personas and a 360-degree customer view in the CRM account record where it can be centrally accessed by anybody who needs it.

Customer priorities and decision-making criteria can be acquired with a voice of the customer (VOC) program which uses mostly digital tools such as periodic surveys to ask customers what they want and record those answers in the customer record. Other methods such as customer input provided in social networks, community dialogues, omnichannel engagement and case resolutions should also be used.

  • Increasing customer share at scale is aided with performance metrics that precede or align with customer growth. Most customer metrics are stagnant, historical and do not provide the insights to grow customer share and CLV. However, a short list of metrics frequently leads to the most impressive changes. These leading indicators vary somewhat but often include customer health score, Net Promoter Score (NPS), CSAT score, Account Engagement Score (AES), purchase history (RFM), and loyalty redemption rate.I’ve also found a few metrics, such as increasing trends in credit memos or RMAs, A/R aging and Days Sales Outstanding (DSO), are indicative of future declining customer share. The right metrics are effective in measuring progress and implementing timely course corrections. Putting these metrics in contact center dashboards keeps them top of mind.
  • Technology is a prerequisite. If your CRM system isn't designed to capture and harvest customer behaviors and intelligence in a way that these insights can be easily applied for relevant and personalized customer support, then it's not going to contribute to increasing customer share.
  • Michael Schrage, a research fellow at MIT Sloan School’s Center for Digital Business, and author of the book Who Do You Want Your Customers to Become?, phrases an essential question this way, "How do you make customers better to make better customers?" Answering this question will likely uncover more innovative customer services.

CLV Performance Improvement Plan

Once you know what customers want, which customer service programs deliver measurable benefits for both customers and the company, and which customers are not profitable, you can implement a performance improvement plan.

Customer Lifetime Value Performance Improvement Plan

Methods to increase customer value will vary by company. The above plan was created for midmarket financial services company, but the framework and methods are illustrative of the process we use across industries. The methods in the above plan to grow customer value are highlighted below.

  • Improve customer satisfaction (CSAT). CSAT is a leading indicator of CLV. It represents the percentage of customers whose reported experience with your company meets or exceeds their satisfaction goals. More satisfied customers spend more and churn less. Some companies instead use NPS, but NPS is not really a substitute for CSAT.
  • Increase average order value (AOV). The contact center for this company operated as a profit center. They increased AOV by configuring intelligent offers, highly relevant upsell items and bundles, and personalized product recommendations using their CRM artificial intelligence capability.
  • Increase purchase frequency. The CRM software customer analytics surfaced a direct link between customer engagement and purchase frequency. The company then increased engagement frequency using personalized newsletters, a loyalty program, omnichannel engagement and nurture marketing campaigns. Separate campaigns were setup pursuant to customer journeys and customer lifecycles as well as to reactivate stalled customers. All engagement applied customer intelligence for relevant, personalized and contextual communications.
  • Improve gross margin. Margins were improved by promoting higher margin products, aligning product recommendations with customer segments, using the CRM software AI to deliver cross-sell recommendations and adopting a strategic pricing program.
  • Value-based customer segmentation. This strategy aligns the cost of service delivery with the customer economic impact or potential. Customers are segmented pursuant to value and high-value customers are offered higher value services such as account managers, entitlements, SLAs or concierge services. Customer-based segmentation increases both CLV and retention for the minority of customers that contribute the majority of profits.
  • Decrease unprofitable customers. This is a two-prong effort to make unprofitable customers profitable or to reduce the cost to serve unprofitable customers. When measuring customer profitability, it's important to recognize that customer value may go beyond their purchases, and that small customers may grow over a defined lifecycle.
  • Increase customer retention. For this company, increasing customer retention has the single highest impact on increased revenues. A 3 percent increase in retention delivered about $850K of additional annual revenues.
  • Customer co-creation. Innovation was difficult for this company. However, as part of the VoC program, we discovered how to improve existing services and several types of products that customers (especially high value customers) desired but were not available. There's no better innovation source than customers. They are your single best source to improve your products and services, and to co-create new products or services. Several customers contributed multiple iterations to proposed products and were later early adopters for those solutions. They were also advocates for the products in online and social channels.

The entire performance improvement program lasted 13 months and delivered an 8 percent increase to CLV.