Guide to Increasing Customer Lifetime Value
My thought process for the post-product/market fit founder
Before we get started, I want to make sure this article is relevant to you… here is who this piece is written for:
You’ve found product/market fit.
You’re past the minimum viable product.
You’re doing one thing better than anyone else (preferably 10x better than anyone else).
You understand that the relationship between CAC:LTV is what is most paramount. You do not need to increase customer LTV to become more profitable; you can choose to drive down CAC instead.
With that out of the way, here are a series of questions I ask myself when determining how to best increase customer lifetime value.
Spoiler alert: It’s a big flowchart. And it’s pretty friggin’ sweet.
By going through this thought-flow, you’ll have an actionable process for identifying the most impactful initiatives to increase LTV.
Data and Analytics
First, I consider data and analytics. This is fundamental; if you don’t know how well the product is performing, you won’t be able to diagnose which problems you should be fixing.
Here are the main bits of tracking you should have in place:
Acquisition sources: Understand where website traffic is coming from, and attribute that traffic back to specific pieces of content. Google Analytics is a good example.
Frontend activity: Track button clicks throughout your product and build out reports to analyze product usage. Mixpanel is what I am most familiar with.
Backend activity: Record backend activities (customers, projects, orders, progress, etc.) and make it accessible to your data analyst. Product teams I’ve worked with use Elastic.
A/B testing: Test different product experiences and analyze the performance of each. Optimizely and LaunchDarkly are a couple options.
User journeys: Watch user sessions to identify pages where user confusion occurs. SmartLook or HotJar will do the trick.
User interviews: Record user interviews and document feedback. I use a combination of Vowel + Airtable.
Business intelligence: Combine all of the above information into one location so you can analyze the data effectively by seeing the entire picture. Domo or Looker are some good ones to look at.
Once you’ve got your data systems in place, you’re ready to move on.
User Feedback
Now that your data is in order, let’s ensure you’ve got good lines of communication with your users.
Some ways you should be engaging with your userbase are:
Prototypes: Share designs you’re working on with new or highly-engaged users to get their feedback before pushing it out to the full product.
Demos: Run 1:1 demos for customers that want a more hands-on approach so you can hear what they’re excited or confused about, and what additional functionality they’re looking for.
Live chats: Handle questions from customers in real time.
Interviews: Set up interviews with different cohorts of your userbase to hear about pain-points, successes, and more.
All feedback should find its way into your business intelligence dashboard and product roadmap.
These first two sections around data and customer feedback are instrumental to any organization, and you won’t succeed in the long run without having them in place and bubbling up learnings from them weekly.
Price
Overlooked, underestimated, disrespected… By far the most disregarded part of any organization I’ve worked with is price points and pricing strategies. Pricing comes in as the first section after data and feedback because it has a massive potential impact on LTV.
If the price isn’t right, you’re under-capitalizing all the users you signed up. And if the pricing model isn’t set up correctly, the entire system falls apart. These bullets below will have a massive impact on profitability (and plenty of other areas of your funnel):
Pricing strategy: Align your pricing model with your value metrics and customer personas. ProfitWell’s Pricing Strategy Guide is a good starting point.
Price point: Review conversion rates and question the current cost of your services. If you’re a SaaS company, familiarize yourself with a Van Westendorp Price Sensitivity Analysis. If you’re in the FinTech space, you’ll need to think of pricing in a few ways – are you still trying to penetrate the market vs. being best-in-class? Are your conversion metrics extremely high or extremely low? What are customers saying about your pricing?
Feature gating: Consider any premium features that are blocked and if you’re effectively persuading users to try out those features?
Upsell modals and messaging: Review performance and test timing/messaging around asking users to upgrade.
Dunning system: Put a system in place for tracking down failed payments. For more information on Dunning, read here.
Pricing page: Revisit your pricing page and make sure you’re centering cost around your value metric and users can easily identify which tier of service they should be utilizing.
Product Performance and User Experience
Next, let’s think through how your product is performing, as poor product performance and a lackluster user experience kill LTV.
If you’re struggling with lots of bugs and low user engagement, you should focus on the following:
Product performance and speed: Achieve instantaneous load times and consistent product performance. Poor performance is death by a thousand cuts.
Bugs: Squash any bugs that customers are reporting, and put automated bug tracking in place (such as Sentry) to catch whatever users aren’t telling you about.
Onboarding: Ensure users reach the a-ha moment of your product in less than 10 clicks. If you’re seeing low user engagement after onboarding, it means there’s a misalignment between customer expectations and product delivery. A lot of this comes down to a first-time user experience that educates users, reduces friction, and keeps motivation high.
Customer support: View customer support as part of your product’s performance and prioritize timely, high-quality responses to tickets. Put a help center in place for users who want to solve the problem on their own.
Messaging, Positioning, and Storytelling
Creating a cohesive user journey from acquisition to referral keeps the value you provide at the forefront of the user’s mind. Inconsistent messaging and positioning will result in a misalignment between expectations and reality:
Marketing channels: Learn from marketing channels that achieve the most engaged users and prioritize spend in these areas, while continuing to experiment with new channels.
Personas: Understand which types of users result in the highest LTV, then dig into why that’s the case.
Lifecycle emails: Review lifecycle email performance and see which messages drive the highest user retention.
Acquisition messaging: Understand which messages in marketing result in the most engaged user base.
Product messaging: Ensure alignment between marketing materials and in-product messaging.
Visuals: Consistent visuals between brand guidelines, acquisition channels, and in-product experience.
Expansion
You’ll never reach the end of your product roadmap, but you might’ve reached the end of all the valuable features. If that’s the case, you need to start thinking about expansion.
Existing roadmap features: Build all valuable roadmap features that have already been identified by your userbase.
New roadmap features: Ideate around and propose new features that will expand the value you provide to your users.
Partners: Consider mutually-beneficial partnerships that will provide value to both parties.
Mergers & Acquisitions: Identify other companies you could merge with or acquire that will drive the value of your services up.
Crisis
Ahh…. If you’re freaking out right now, it means you’re in an existential crisis. Here are the typical drivers:
Undifferentiated product: You’ve built a solution in a crowded market, so you’re all driving down the profitability of each other. The most profitable products are the ones that have the least competitors.
No market need: You built a solution looking for a problem. [You probably shouldn’t be in this article, as that means you never achieved product/market fit.]
No network effects or product-led growth: You’re not able to achieve organic growth because your product doesn’t get better with more users, and you don’t have built-in retention and referral mechanisms.
Mistimed the market: You built something that people weren’t ready for yet.
Unfortunately, there are no easy answers to the above. However, the sooner you recognize them, the sooner you can start working around them.
Til next time.
-Zac