Prioritising customer lifetime value (CLV) is one of the best things that you can do to boost B2B online revenue and there are a number of reasons why.
To start, according to Invesp, it typically costs five times as much to attract a new customer than to keep an existing one.
However, more companies focus on acquiring new customers than retaining the ones they already have. The reality is that if you shift your efforts towards maximising customer lifetime value, you will be able to improve B2B online revenue while optimising the use of your resources.
Let’s take a look at why focusing on customer retention is the first step you need to take in improving CLV.
What is Customer Lifetime Value?
Before we dive into the importance of CLV, we should first touch on what it means. Customer lifetime value is essentially the prediction of all future revenue / profits that will be generated from a customer throughout the course of their relationship with a business.
Naturally, calculating CLV can be challenging. However, you can use the following formula to get a rough estimate for your business:
CLV = (Average Order Value) x (Average Purchase Frequency Rate) x (Average Customer Lifetime)
In the formula above, purchase frequency refers to the total orders divided by total customers, and average customer lifetime is how long, on average, a customer maintains a relationship with a given business.
Utilising this type of estimation can be incredibly helpful for your business, given that it allows you to target more valuable customers and direct your customer retention efforts towards them. This is a great way to maximise profits while minimising costs.
Why You Should Prioritise Customer Retention Over Customer Acquisition to Improve CLV
Because CLV focuses on the long-term relationship between a customer and a business, customer retention strategies are essential when it comes to optimising CLV. As previously mentioned, retaining a customer often requires much lower costs than acquiring a new customer.
It has also been found that existing customers, on average, spend 67% more than new customers. What’s more, according to Accenture, 68% of consumers won’t return to a business once they leave it.
Expending less effort for more gains should make prioritising customer retention a no-brainer. However, according to Invesp, only 18% of companies place a greater focus on customer retention, compared to 44% of companies that prioritise acquisition.
We challenge you to join that minority and put customer retention at the centre of your customer relationship management strategy. Here’s how.
The Ecommerce Strategies That Keep Customers Coming Back Year After Year
So now that we know just how important CLV is, how do we improve it?
There are a plethora of approaches that you can take to improve customer lifetime value, all of which are centred on keeping your customers satisfied and ensuring that they keep coming back. In today’s digital world, a large portion of these approaches is via ecommerce. Ecommerce business transactions can vary in nature, including B2B and B2C, and are applicable to a wide range of industries including manufacturing, wholesale, and more.
First off, facilitating the online order and purchase process is key in keeping B2B customers satisfied. One way to do this is by streamlining the order process and eliminating the need to meet with a sales representative. According to McKinsey & Company, only about 20% of B2B buyers hope to return to in-person sales, with 70-80% of B2B decision makers preferring remote human interactions or digital self-service.
The same goes for reordering. Facilitating your reordering process by scheduling reminders when it’s time to reorder as well as providing customers the ability to view past purchases and reorder with one click (instead of searching through catalogues and reviewing compatibility) are great examples of ways to provide a more seamless and positive customer experience. This is a crucial step in the post-purchase timeline that increases satisfaction and encourages retention.
There are a host of other tactics you can employ to give customers the incentive to maintain their relationship with you, such as triggering automatic notifications when products are back in stock or providing detailed product information (e.g. manuals and videos) on your ecommerce platform.
Finally, we recommend that you facilitate sales and service rep support on your website, giving customers the option to talk to someone if they want or need to. Online support has contributed to increasing customer satisfaction scores, particularly as in-person interactions were limited during the COVID-19 pandemic and businesses were required to pivot to digital alternatives. According to Forbes, the average retail industry benchmark score was 87% customer happiness in 2019. This rose to 91% in 2020 and reached an all-time high of 92.5% in 2022. Customer expectations are higher, but a focus on customer experience is keeping them beyond satisfied.
With these stats in mind, it’s clear that offering helpful and convenient customer support tools on your ecommerce platform improves CLV even ahead of customer expectations.
How Ecommerce Can Increase B2B Online Revenue and Improve CLV
Ecommerce can be used as a strategy to enhance B2B sales and online revenue, which in turn will ultimately improve CLV. When you focus on customer lifetime value as an overarching business strategy, you can focus on retaining your existing clients rather than expending time and resources on trying to attract new ones.
For example, one of the ways that you can increase CLV is by suggesting curated content and product recommendations to users based on their preferences and past purchases. By doing this, you will keep customers coming back for your products, increasing their CLV as well as your B2B online revenue.
Data shows that the average repeat customer spends 67% more during their 31st to 36th months with a business than in the first six months. This highlights the importance of customer retention and the resulting impact on CLV.
While calculating and optimising CLV may seem like a big mystery, it’s really quite simple. It comes down to providing your consumers with tools and services that they didn’t even know they needed, fostering trust between your brand and your customers, and investing in customer retention efforts.