7 Reasons To Increase Your Focus On Customer Lifetime Value

Kelly Crothers
Kelly Crothers

How much are your customers worth to your business? One way to find out is to measure Customer Lifetime Value (CLV), an important metric that takes into account the total revenue generated over the lifetime of your relationship with a customer after subtracting all sales and service costs.

When an organization increases CLV, it means that revenue is continuing to be earned after the customer’s initial purchase transaction is made, and that a higher level of business performance has been achieved.

Even though sales, as a practice, is evolving in the IT channel, CLV still isn’t top of mind for every value chain organization. Most resellers remain focused on growing their customer base and bringing on new logos, but the really successful ones also recognize the importance of increasing CLV.

These forward-thinking firms have a clear understanding of the significant revenue opportunity in after-sale maintenance contracts and recurring service revenue. That’s because when done right, nurturing the customer relationship after the initial purchase -- with appropriate and timely offers for new and related products and services -- not only creates new recurring revenue streams, but also builds brand loyalty and stronger retention rates.

Increasing CLV doesn’t happen overnight, and it may require a shift in the way your company does business. Take into consideration the seven stats below, however, and you might be convinced that a stronger focus on customer retention and after-sale maintenance and services annuities is worth the effort:

1.     Cost: It costs 7 times more to acquire a new customer than retain an existing one (Source: Bain & Company)

2.     Profits: A 5% increase in customer retention can increase profits by 25% (Source: Bain & Company)

3.     Probability: The probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20%. (Source: Marketing Metrics)

4.     Opportunity: 30% of new products are not covered by contracts and 50% of original contracts are not renewed. (Source: McKinsey & Co.) The result is plenty of opportunity for organizations in service contract sales and renewals.