Knowing how much of a minefield pricing can be, I can help keep your pricing decisions as simple, stress-free and profitable as possible!
A great question I get asked a lot is: “How do I increase the lifetime value of my clients?”
ne of the more disheartening aspects of business is the constant need to generate new leads and sign new clients in order to grow.
It’s natural to want to mitigate this necessity slightly by ensuring your client lifetime value is as high as possible. Not only does this give you a little breathing space, but it will create amazing abundance in your business – especially if you also continue to generate new leads, and sign new clients.
What Is Client Lifetime Value?
For those of you unfamiliar with the concept, your client lifetime value (or CLV), is the total amount of revenue you can expect to receive from a client over the ‘life’ of your relationship.
To help you calculate your CLV I’ve put together a handy cheat sheet that determines both your current and potential client lifetime value, based on a few simple figures easily obtained from your financial and customer records.
Download your free copy and take a minute to figure out your current CLV.
Fab! Now, let’s dive into the three core elements of Client Lifetime Value, and exactly how to use them in your business. I call this the The CLV Trinity.
#1 Increase Your Revenue Per Client
This is the no-brainer solution to improving your CLV: increase the amount of money your existing clients pay you.
There are a few ways to do this:
- Raise your prices
- Cross-sell other products or services
- Upsell higher end products or services
In short, you can either ensure your clients buy more from you, or you can earn more from what they already buy.
Before you start bumping up your prices, take a moment to consider if there is a way to improve your profitability.
In other words, can you cut your costs (which we’ll dive into in a lot more detail in a moment) to increase the amount of profit you make without making your clients pay more?
Making your business more profitable is always a good plan! But when once you’ve maximised your profitability you may also want to look at increasing your prices. When doing so, make sure you do so in a way that creates the perfect perception of your business.
Beyond looking at profitability and pricing you can boost your CLV by offering existing clients additional products and services, ensuring they buy more from you over the course of your relationship.
Cross-Sell Additional Services
Cross-selling relies on offering clients something related to what they already get from you. For example, if you provide a client with a copywriting service, which delivers all their website copy, you might also offer them an ongoing copywriting service, which delivers a certain number of blog posts per week.
The lifetime value of the client is greatly increased using this tactic. Now you not only have the revenue generated from the original project, but also that which will come in from the related ongoing monthly service.
This works both ways. Whichever service your client signs onto initially, you can offer them the complementary service at a later date.
Upsell High-Value Offers
Upselling works in a similar way, but specifically aims to deliver a higher-value offer than the one your client has already purchased.
For example, if your client is currently on a monthly service package costing $1000/month, you might upsell a higher-end package that provides more value, and costs $5000/month.
Upsells can also be an extension of an existing product or service. For example, if you have a list of clients who previously bought your book, and you release an eCourse version, that is a natural upsell. If you then offer a course that covers the same topic at a higher level, that is another way to upsell to your existing clients.
Every time you successfully cross-sell or upsell you are increasing your client lifetime value.
Establishing The Value Of Your Clients
A lot of entrepreneurs fall into the trap of branding certain clients ‘low value’ due to the amount they are currently spending with them.
The problem with this is that perceiving your clients in this way can affect the way you serve them.
For example, you might prioritise clients you perceive to have a higher value, to the detriment of your relationship with ‘lower value’ clients.
As a result, your perception becomes a self-fulfilling prophecy, and those ‘low value’ clients never invest more money with you, because they have received a low value service.
While it’s understandable to do this, it’s also a mistake. Aside from the negativity generated through word of mouth by unhappy clients, you are also shooting yourself in the foot.
Just because a client is currently only spending a small amount with you, doesn’t mean they won’t spend more in the future!
When assessing the value of your clients, you need to consider their potential for the future, and how you might ensure they become high-value clients.
For example, are there new services or offers you could introduce that would entice them to spend more with you in future?
If you don’t currently have anything you can cross-sell or upsell, and you believe a client has already spent as much as they ever will, it may be time to look at introducing something new.
If you view all clients as high-value, and deliver a high-value service, you create raving fans who love you and happily invest more! Capitalising on your existing clientele is usually considerably easier and more effective than constantly trying to find new clients.
Shift Your Marketing Message To High Value Clients
Look at your marketing message. Is it aimed squarely at high-value ideal clients? Remember, ‘high-value’ is a matter of perspective. You need to target the people that genuinely represent the highest possible value to you.
This can mean customers who are able to afford big ticket items, or continue to pay high monthly premiums for years to come. It doesn’t always mean the people in the highest wage bracket.
Often the clients with the highest value are those who have an immediate need that is relatively low-cost, but in future (often with your help!) they will need additional services.
Their individual investments are relatively low, but over time they represent a huge amount of revenue.
For example, a brand new entrepreneur with very limited resources probably wouldn’t be interested in your high-end service BUT they would very likely be interested in buying your book, which explains how you do your high-end service.
It’s a low cost investment that could help them a lot.
Six months from now, after implementing all the advice in your book, that same entrepreneur will be in a position to spend a bit more. They will also need to learn at a higher level, and they might buy an eCourse from you, or outsource something small to you on a monthly basis.
As their business continues to grow and flourish with your aid, they will steadily need higher-level support, while simultaneously being able to afford to invest more in your offerings.
They started out as an apparently low-value client, spending $10 on your book. Yet over the course of time they invest more with with you.
#2 Ensure Client Loyalty To Retain Customers Longer
The second critical element to look at when considering your CLV is loyalty. This is, really, an absolutely crucial aspect of business to consider across the board.
The more loyal your clients are, the more sustainable your business is, and the more you will grow as a result of positive word of mouth.
Loyal clients also tend to be high-value clients, because they are exactly the kind of clients who follow the upsell process I’ve just outlined.
They buy something from you, and love it. Next time they need something similar, you aren’t just their first choice, you are their only consideration.
The longer you retain your clients, the more opportunities they have to continue buying from you, and the greater their lifetime value becomes.
In addition, it costs far less to retain clients than it does to acquire new ones.
Part of calculating your CLV is looking at the costs incurred as you serve your clients. Those costs are considerably less when you don’t need to expend time, energy and resources acquiring the client.
Here are a few ways to boost your client retention:
Educate Your Clients
You will often find clients ‘leave’ you, not because they aren’t loyal, but because they are unaware you can do anything more for them.
If they have come to you with a specific problem, which you have solved, it’s easy for them to assume there’s nothing more you can do for them. The reality is often that you have complimentary offerings they would benefit from. You may also have new products or services in the pipeline that are perfect for them.
If you don’t tell them about all the fabulous stuff you can do, and exactly how it will benefit them, they will be unaware of it.
The content you create (blog posts, videos, audio, social media, newsletter, even direct mail) are all crucial, not only for attracting new clients, but educating both prospective and existing customers on all you have to offer.
Offer Clients A Lifeboat
The odds are at some point you’ve bought a lifeboat. Whether you realised it or not at the time will depend on how expertly you were handled.
Often when a client comes to you saying they want to cancel the service they buy from you, it’s not because they are disloyal, or even dissatisfied. It may be they can’t currently afford to continue. Or it could be that their requirements have changed, and the existing service no longer suits them.
If you do nothing and let them go, you will lose them. In this situation offer them an alternative that is a better fit for their current situation.
For example, you’ve probably tried to cancel a mobile phone, TV or internet contract at some point. Maybe you found a better deal elsewhere, or were paying for more than you were using. Whatever the reason, when you called to cancel, the sales team (or perhaps more accurately the ‘save team’) asked why you were leaving.
Odds are they then suggested you switch to a different service, or offered you a discount, making it more affordable/suitable and preventing you from canceling and going elsewhere.
If a client comes to you saying they want to cancel their service, offer them a lifeboat. It could be a discount, a slightly different deal, or a tweak here and there will satisfy them, ensuring you retain them.
It can feel like losing, especially if you give them a discount, but you need to remember the cost of that discount is likely a lot less than the cost of acquiring a new client.
Your client, meanwhile, will be grateful you were able to accomodate them, making them more likely to remain loyal and purchase more from you in future.
Set Up A Loyalty Programme
Another great way of promoting loyalty is to create a loyalty programme. It works just like the loyalty scheme at your favourite coffee shop. When you buy a drink, you get a stamp. When you have collected enough stamps, you get a free drink.
How can you implement this is your business to reward clients who buy from you again and again, or stay with you month after month?
#3 Lower The Costs Of Serving
The final piece of the CLV puzzle is the cost of serving your clients. As mentioned previously, your costs factor into the equation when calculating client lifetime value. The less it costs you to serve your clients, the higher their value is, because you are retaining more of the revenue they generate in profit.
- Could you switch to a cheaper supplier?
- Can you reduce the amount of resources needed to perform a service? (i.e. tweak your workflow, or batch elements so you spend less time per client.)
It may be that your costs are fixed and there is little you can do to mitigate them. But try looking at them from a slightly different angle. Sometimes lowering costs is very literal, but other times you actually do it by spending money (I know, totally bizarre, but true!).
- Could you invest in a system that is more efficient, and would be more cost-effective in the long-run?
- Can you outsource some of the work you are currently doing yourself, allowing you to take on more work that commands a premium price?
- Would it be more cost-effective to hire a full-time employee than continue to outsource work? Most people have a ‘tipping point’ when it comes to outsourcing. It’s cost-effective up to a point, but at some stage the amount they’re paying on an hourly rate exceeds the amount they would pay someone as a salary.
Revenue, loyalty and costs. These are the three defining elements of the lifetime value you receive from your clients. Learning to effectively leverage them to ensure that value is at a premium can take some practice.
Remember, these are three elements that must work together. You can’t consider them separately, or the whole thing falls apart.
For example, cutting costs to the detriment of the value and experience your clients receive will have a negative impact on both their loyalty and their willingness to invest in you in future.
Likewise, bombarding clients with cross-sell and upsell offers can negatively impact their experience, as well as their perceptions of you.
Boosting the loyalty of your clients is essential, but doing it can easily result in excessive costs if you’re not careful.
Make sure you download my free Client Lifetime Value cheatsheet, play around with your numbers, and see how tweaks and changes affect your CLV.
Look at all three elements and how to optimise them for maximum value over the course of your relationship with a client but remember that value goes both ways.
You shouldn’t think of your CLV purely as a dollar amount you receive. When you look at your gains and the value received by your client in tandem, you will be better able to balance everything and ensure that both you and the client find the relationship highly valuable.
Knowing how much of a minefield pricing can be, I can help keep your pricing decisions as simple, stress-free and profitable as possible!
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