Which is better: One week off starting tomorrow, or four extra days off every month for the entire next year?
A whole pie for dessert tonight, or a slice every night, forever?
Five bags of potato chips (but you have to eat them all today), or a steady supply of free chips over the next 20 years?
We all agree, right? The long-term play (or lifetime value) is better because long-term stability beats short-term success every time.
That’s the principle behind customer lifetime value (CLV) — long-term revenue from a satisfied client is better for your bottom line than a string of short-term successes.
We’ve collected eight methods you can use to increase customer lifetime value for your agency, enabling you to achieve new levels of stability and profitability.
What is customer lifetime value (CLV)?
Customer lifetime value is a projection of how much an average customer will spend with an agency or business over the entire length of the working relationship. It’s a metric that takes a longer-term view, looking at overall value — not just how much a client is paying right now or this month or even this year.
CLV is an important metric because it represents the average value of acquiring a new client. It also helps to shift agencies away from a project work mentality and toward a mindset that prioritizes long-term client relationships.
We’ve shared before about the benefits of thinking in terms of total contract value (TCV). That’s a good first step in moving away from “float from project to project” mode. But if TCV is a first step, customer lifetime value is the final frontier. It’s all the total contract values over all the years you work with a client.
Benefits of increasing your agency’s CLV
There are a few powerful reasons why increasing CLV is the smart move for your agency, and they all touch on two central themes: stability and profitability.
First, a higher CLV typically means better long-term profitability.
Agency profitability is vital at every stage — now, six months from now, and 10 years from now. Increases in CLV tend to track with increases in long-term profitability because long-term clients are more reliable than on-again, off-again clients or those with occasional isolated projects.
“It may be okay (or even highly lucrative) to take project work, but, with few exceptions, most established firms shouldn’t be pursuing it. Your business development goals should be focused on replacing your outgoing clients with even better, more lucrative incoming clients.”
In other words, take the well-paying project work that drops into your lap. But for long-term profitability (and reduced customer acquisition costs — see below), you want to chase lucrative, long-term, high CLV clients.
Reduced customer acquisition costs
Increasing your agency’s CLV reduces customer acquisition cost (CAC), at least in a relative sense. In the normal course of business, your CAC will be the same for short-term clients as for long-term ones.
Focusing on high-CLV clients (or on growing CLV for existing ones) means you’ll lower the ratio of CAC spend to CLV revenue.
Strengthened client relationships
It may seem backward at first, but increasing your agency’s CLV actually strengthens client relationships. Clients want to work with an agency with a track record of long-term success. When you can demonstrate that success (CLV being a primary indicator), clients come in the door with a higher level of default trust.
You also get better at delighting clients as you get to know them and their businesses. The longer you work with a client, the more intimately you’ll understand what they do, who they serve, and what they truly need from you.
By working toward higher CLV (which usually tracks pretty closely to client retention), you’ll build high-trust relationships.
Like we mentioned earlier, if your customer acquisition cost is relatively even among most clients, then increasing a client’s lifetime value means you’re getting more back on that investment. In other words, you gain a higher ROI without much additional effort.
8 methods for increasing customer lifetime value
Increasing CLV at your agency is an obvious goal — the harder question is how to do it.
Experiment with adding these eight methods to your client acquisition process and watch that CLV move steadily higher!
1. Improve the client onboarding process
The first interactions you have with a paying client have the potential to set the tone for the entire engagement. An inconsistent, unclear, or unfriendly client onboarding process can leave a bad taste in clients’ mouths.
And the opposite is true, too. If onboarding is a pleasant experience, clients will be primed to like you — even before you’ve accomplished any real results for them!
You still have to deliver on all the work that comes after onboarding, of course. But by making the client onboarding experience a delight, you’ll come out ahead — and keep more clients for longer.
2. Create a positive and personalized customer experience
A positive, personalized customer experience impacts CLV because everyone wants to have positive experiences that seem tailor-made for them. You want your clients to feel like you built a bespoke process around their needs — not like you’re squeezing them onto your creative assembly line.
One way to create a tailored customer experience that moves the needle for your customers is to get a stronger handle on projects, project schedules, deliverables, and the like.
3. Deliver outstanding client communication and engagement
You’ve heard the old mantra about good, fast, and cheap being the way to go. But the truth is an agency could deliver all three and still fail to meet client expectations.
Excellent communication and customer support is a fourth pillar that’s at least as valuable as each of the other three.
If you can deliver results on time, at an agreeable rate, and you’re accessible and easy to communicate with, you’re the perfect partner and your clients will be less likely to want to leave.
A client work platform like Teamwork.com allows for easy delivery of exceptional client communication as well. You can invite clients directly into projects, showing them project details and collaborating in a central location.
4. Collect and listen to customer feedback
Collecting and listening to customer feedback is another effective way to increase your average customer lifespan and CLV. This ties into what we’ve already been stressing: Customers don’t want to feel like assembly line products.
But what if, instead, they see you listening and actually making changes based on their feedback? They’ll be more likely to stick with an agency that values their needs and opinions.
5. Implement a loyalty program
Loyalty programs are fantastic ways to increase brand loyalty and customer lifetime value. You know what these customer loyalty programs look like at the grocery store or in ecommerce, and you might have helped a client implement their own. But have you ever explored what a rewards program could look like in an agency context?
Volume discounts, priority service for year-plus clients, swag, and other perks can go a long way. For both for new customers and along the various points of the customer journey, these could be great loyalty incentives for your customer base that encourage retention.
6. Offer a referral program
A referral program can help to increase CLV in similar ways as a loyalty incentive. You’re gamifying the professional relationship, in a way. Satisfied customers bring you other customers for free and earn some kind of discount or perk in the process.
That feels good for them and saves you on CAC — but it also makes it a little harder for clients to leave. They won’t get that discount or perk or incentive at your competitor, so they stick with you — even if it’s a relatively trivial perk or small amount of savings.
You also might see an uptick in CLV from the businesses referred in through word-of-mouth. Chances are, they were referred to you by someone they trust, and they have already seen your results in action. They’re likely several steps in front of a lead that doesn’t have that kind of connection.
7. Upselling and cross-selling
We’ve focused mostly on increasing customer retention and customer satisfaction so far, but there’s another powerful way to increase CLV: upselling and cross-selling. These are both methods for getting your current base to spend more on expanded services.
Upselling is upgrading an existing service (pushing a client from one blog post a month to four, adding video to their social package, etc.). Cross-selling is pitching a related service to an existing customer (selling a current website-only customer on your paid ads or social packages).
In either case, you’re leveraging existing customer relationships to generate additional revenue by offering an improved level of service or a related line of service.
Pair these tactics with retention-oriented ones, and now that the client’s LTV starts to grow exponentially!
8. Offer annual pricing
Annual pricing can help to increase CLV because, at a minimum, you’re getting a year’s worth up front, raising your “CLV floor.” You’re also screening out leads that likely would have been a bad fit, and you’re saying something about the value you provide.
Annual pricing is also less visible, in a way. Customers won’t be feeling that pain point every single month, but rather, just once a year. And the friction of switching is that much stronger after a year (or two or five), helping to protect your retention rate and increase the total amount of value customers provide you.
Boost your customer lifetime value with Teamwork.com
Proactive marketing efforts are a great way to reduce customer churn, provide a better customer experience, and increase your total revenue. So is having a handle on what’s going on in every stage of your clients’ projects.
Teamwork.com is agency project management software that helps you be your best self. From staying on top of project details to proactively planning schedules to communicating with your teams and clients — Teamwork.com helps you exceed client expectations at every turn.
It’s a powerful platform for implementing many of the strategies we’ve shared today. With Teamwork.com, you can reinvent your onboarding process, create a more personalized customer experience, vastly improve your client communication, and collect client feedback. It’s the perfect foundation for increasing CLV — and, in turn, your profit margins.