Boosting The life time value of a customer – 3 Tips

The Life Time Value of The Customer

The life time value of a customer is the core metric in SaaS which determines the fiscal success of a product or service with said customer. Since it is an aggregate measurement of all account revenue and feature revenue associated with a given customer, this means there are many, many variables which can contribute to a positive or not so positive result when measuring this.

In most fields or topics, excessive variables to track and account for are negative things, resulting in difficulty in strategizing to improve the net results. However, for the life time value of a customer in SaaS, these multiple variables actually make it easier to formulate plans to improve these net results, many in fact.

With that in mind, let’s look at three key tips for improving this life time value. In doing so, perhaps we can work to make SaaS a more profitable business and software model, and garner it the respect and acceptance it needs in order for computing to move forward.

Bear in mind that these are general tips for general SaaS, and some modification of what is suggested may be needed to match our corporate culture or your business philosophy. With that out of the way, let’s begin.

#1 – Purchase Incentives

A paid customer is likely to feel that they are getting everything they need out of your software. This mentality is especially prevalent in freemium models, where a free form of the service is available. In paying for a higher grade account, rather than settling for free, they will not feel particularly compelled to purchase added features or secondary services from your company.

The only real way to abate this is to provide incentives for the customer to do so. What is the best way to incentivize them? Not feature disparity, which is actually beginning to produce problems in the SaaS industry, but rather discounts for packages.

Cable companies and ISPs have pioneered these bundles, as have cellular carriers, and the concept is ideal for SaaS as well. In order to improve the life time value of a customer, simply offer a percentage reduction in price if they bundle other services or extra features. They still pay more than they initially did, but they save money on the added features, thus providing a marked increase that both sides are satisfied with.

#2 – Outreach Rewards

Many companies famously use outreach rewarding as a way to get customers to refer their friends, family and colleagues to the service they are using. This is a PR and customer acquisition engine of boundless, exponential power of a company executes it properly.

This once again boils down to incentive, and offering small discounts for referrals that result in new paid subscriptions is an affordable way to do this. This is one case where their bringing of new customers into the fold is a slightly abstract but measurable addition to their life time value, and one which is invaluable in this age of information.

#3 – Gradient Optional Ad System

This is a controversial model, and one that is not recommended for all situations. It requires there to be at least three tiers to a service, and three price ranges to accompany them, for it to even be done tastefully.

Basically, the concept works thusly. A free user will have semi-heavy ads in their free account, which creates a measurable life time value they otherwise would not have. Following this, an upgrade can give them the ability to block ads for a paid account, but these ads must be turned off frequently, as they turn themselves back on incrementally.

The final tier, which is not a lot more expensive than the previous, keeps them completely disabled, with no hassle to continue turning them off. This is a risky thing to try, but many companies have seen it work. You run the risk of alienating customers by annoying them, so an alternative is simply to implement ads only on the free accounts, which does in fact improve their life time value from a negative number.

These are just three tips, one of which is controversial, on how to improve the life time value of a customer, without resorting to inappropriate or inconsiderate measures.

Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.