What is Customer Lifetime Value (CLTV)?

What is Customer Lifetime Value (CLTV)?
The Jasons Take On...
The Jasons Take On...
What is Customer Lifetime Value (CLTV)?
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Episode Description

In this episode, we’re talking about something that is super important, not just to customer success, but to the wider business, customer lifetime value (CLTV). What is it? What do we mean by it? And what does it mean for our customers?

Customer lifetime value is not just about the sale or the acquisitions, it’s about the long-term relationship. , but when you start to think about customer lifetime value it opens up a lot of doors for how to improve your organization. This episode takes a deep-dive into the concept of CLTV and how you can use it to make changes that accelerate your growth.

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Transcript

Jason Noble: [00:00:00] Good morning. Good afternoon. Good evening everybody. This is Jason Noble and Jason Whitehead. With another episode of the Jason’s take on podcast series, or maybe the two Jason’s. We are having a think about naming branding and some other big changes. So stick with us on this.

We may see some really cool stuff coming. That was starting to think about this episode, we’re going to talk about something that is super important, not just to customer success, but to the wider business, but it’s around customer lifetime value. What is it? What do we mean by it? And what does it mean for our customers?

But before we do that I’m Jason Noble based here in London and quick. Hello from Jason, the other Jason. Hey,

Jason Whitehead: [00:00:38] I’m Jason Whitehead based in Washington, DC, where we, the other Jason.

Jason Noble: [00:00:41] I’m the other Jason sometimes, and it depends a normal format. We’re going to bounce a few questions that we’ve had some thinking about on this, but really, as we said, this is such an important topic and one that I think there’s not enough.

Thought put into a lot of organizations, struggle with this, where’s the responsibility for it? What does it mean? How do we go about this big change that we’re doing as part of generating value for our customers as normal. This is a conversation with the two of us. There was no guests this time. I think we’ve had a lot of guests recently, but it’s just myself and Jason today.

But we always like one of our bold challenge questions. And the one today for all of our listeners is what bold actions can you take to dramatically increase the lifetime value of the relationship? For you and your customers. So have a think about that. Come back to us. We’d love to hear more from you on this.

So that to kick us off with this first question, Jason, I’m going to throw this one straight back to you. Why are we talking about this? What is customer lifetime value all about? Why is it so important and why now?

Jason Whitehead: [00:01:38] Absolutely. I think for me, there’s a lot of things here, customer lifetime value.

It’s a term that most of us know and hear all the time, but never really spent a lot of time dissecting it of, yeah. Other than pay how much. How can we get the most money out of this potential customer? The most revenue, never really thinking beyond that too. What does this mean for our organization?

What do we do with this concept? So I think it’s important to really take a deeper dive here and say, when we’re talking about this, where do we go? And it’s not just about the sale or the acquisitions, it’s about the long-term relationship, but when you start to think about customer lifetime value it opens up a lot of doors for how do we improve our organization?

How do we make sure we’re delivering value to our customers and what are the things that need to happen a little bit differently? And then, quite simply, I think it’s also, it’s such a proxy and a key metric for a lot of investors and for a lot of other folks that executives and whatnot okay, are we on the growth path?

Are we hitting our goals? Do we have the right customers coming in? Have we gotten, every ounce of potential revenue from the service or product that we sell. And so I think it is a very topical issue around there just because of the revenue component of that. But what about you? Why do you, why do you think it’s important?

Jason Noble: [00:02:46] I think, again, it’s from these things with customer success the clues in the name, this is customer lifetime value, and I think it’s great. It isn’t just about revenue. This is about growth, but the other way to think about it which I don’t think many of us do is this is lifetime value for our customers.

I That in itself is a statement is a phenomenal picture almost if you think about it that way. So we’re saying to our customers, we’re going to provide you with value over the lifetime of the relationship with us. And I think it really does help. It really does help sell that this is about a long-term relationship.

No, it’s not the way it’s intended, but from a customer point of view, if you talk about lifetime value, this is about delivering value to our customers throughout all of the lifetime with us. And I think that’s really key. And the other, you touched on it earlier on, but. This is a big number for our investors.

Absolutely. For the markets for analysts but also for our teams and our leadership, we want to know that we’re driving this growth. So ultimately it’s a big number for our customers as well. They want to be able to see that they’re getting growth and growing value from us.

Jason Whitehead: [00:03:52] Yeah. I love what you just said about the clue is in the name, when you think of even customer success, so many of the customer success teams.

They view delivering customer success as a way to maximize the vendors complete success. So it’s a misnomer there and even just the name here, customer lifetime value. How much value are we getting from the customer? It’s a very us-centric, is it? It’s not as

Jason Noble: [00:04:13] it makes you wonder. I think there’s a lot of stuff that we probably talk about in customer success that is still, although the word customers in there.

We’re probably. Coming from us rather than the customer which you can turn all of these things around. I think it gives you a really different perspective. So you see, we are focused on giving value to our customers over their lifetime. It’s a different way of thinking about it, but I think it helps you really understand what this means.

It’s about growth. It’s about longevity. It’s about growing value for our customers. It’s a really powerful thing to think about.

Jason Whitehead: [00:04:45] It is, and the group that I’m with its success chain that it’s, we’re all focused on, mutual success and mutual value for suppliers and customers and blurring the lines between vendor and supplier.

Cause everyone has to get value or no one gets I

Jason Noble: [00:04:57] love it. And I think that’s what we’ve got to do here is blur those lines. This is, it’s not just about what we’re trying to do here. The other thing we could talk about what do we mean by value? Is it the same as revenue?

And I don’t think it is the same. It could be similar, sure. Values part of the revenue. It’s part of how you measure it, but it all depends on your perspective. How have you defined value for your customers?

Jason Whitehead: [00:05:18] And having an honest and Frank discussion with them, and one of the things I was thinking about was maybe even the term customer lifetime value should be more of a relationship, lifetime value where you say what’s the value to us and you, and the number may be different.

It may be here’s the revenue number, but that’s not the only source of value to you. Ah, I

Jason Noble: [00:05:34] like that idea. And maybe you do need to start thinking about them two different ways, yes. Those are the internal view. But you’ve got to think about it from a customer. And, that’s something that I think your customer success manager could really drive home with your customer.

This is what we think our value for you is this is what the lifetime value for you is and help the customer achieve that. And I think if you can have a target around growth and value for a customer it helps the customer drive that themselves, go on. How do we hit these targets?

Jason Whitehead: [00:06:03] Yeah. And can you imagine having a QBR EBR with a customer where you mentioned, here’s the relationship lifetime value here?

It’s how we’re estimating the value that you get and how do you see this? And here’s the value that we’ve gotten from this, revenue and otherwise. And that’s a very different conversation. I

Jason Noble: [00:06:16] stressed as huge as well. Cause it’s all about transparency and this is a two way thing and your customers want to know, that this is a partnership.

It’s not just them. This is how we all get value from this. And the more successful. Our customers are, it goes back to the whole ethos of customer success. It’s about all of our success.

Jason Whitehead: [00:06:35] And that’d be interesting as a internal executive and a vendor. If you were managing that to customer lifetime value, that revenue coming in, but managing and tracking.

How are we seeing the growth and the value we created for our customers? And is that sufficient to beat our competition? Is it sufficient against our internal goals for value we create for our customer? I think it’d be really interesting.

Jason Noble: [00:06:53] I think it’s interesting because again, it goes back to that.

How do you measure the value? The kind of defacto thing is it’s how much the customer’s paying us this year, how much we’re going to forecast and pay next year. So if we look at how do we forecast lifetime value, a lot of the focus is still around revenue. But it doesn’t have to be there’s other things as well.

Jason Whitehead: [00:07:13] Like what else would you say needs to be there?

Jason Noble: [00:07:15] I think there are things that you can see to look around it. It’s things other than red, other than river revenue you can look at advocacy. What case studies are customers doing? White papers, referrals, recommendations. There’s huge value to that.

They, yes, they have a relationship to revenue, but it’s not direct necessarily. I think you can also look at how you. Yeah, the stability of revenue forecast, so that should change. But I think the other thing is it’s around outcomes. Let’s define what are the outcomes that we can help you achieve and better defining those and targeting those.

And I think that becomes a real part of our pitch as well, which is really important. The other thing I’d say is that actually, a real big plus here, and it’s something that I’m such a big proponent of. Is, it helps with voice of the customer, the better and stronger and more positive that voice of the customer.

I get to find out what customers are saying about the product, what they’re saying about support, what they’re saying about the services, what do they want from us? What more can we do for them as well as what are the gaps they’re seeing? So that really, if there’s value in understanding that feedback any other things that you’d have there.

Jason Whitehead: [00:08:22] No I really liked what you said about the stability and in forecastability of revenue, because I know there’s a lot of organizations, I’m having a good year. I’m having a bad year. Am I having enough? Can I forecast that I will have a good enough year next year to make this investment in staff, in development and new technology, new tools in a new office, whatever it needs to be, that there are probably a lot of organizations out there that if they had a certain amount of their customers that were in a longer term relationship that they could really count on, no, they might even forgo.

The kind of maximize the revenue and make that trade off. And I think that can be huge, especially for growing companies, in ones that are, see a lot of competition, what can I count on? Because that really enables some more planning, strategic, yeah. Investments

Jason Noble: [00:08:59] in of ways. It also makes everybody think about the idea of value of a lot more.

It doesn’t always mean revenue. What else do we need to consider about value? How are we driving this value for our customers?

Jason Whitehead: [00:09:12] Absolutely. So along those lines, too, when we’re thinking about the lifetime value, let’s say you have a new prospect coming in and you’re trying to evaluate with Eric, how can you forecast what you think that, that lifetime by that prospect might be?

And then what do you do with that information?

Jason Noble: [00:09:26] I think there’s lots of, you can do this, Jason, I think for me, you also, you’ve obviously got to look at the initial sales value and the forecast from our sales team, and also start looking at expected renewal rates. Expecting renewal values. But the key thing is, what other opportunities are we expecting to be able to drive with that customer and what other value?

So it, isn’t just about renewing in year two and adding data, it’s really looking at what can we do around growth? How do we expand? How do we provide more services, more value? How do we grow the value of the partnership? And I think that’s super, super important to do. It’s not just about forecasting, the renewals and that can be really difficult to do.

I think what you’ve got to do. Is look at past customer profiles, look at different customer segments, different cohorts. You can get some ideas from that in ultimately it’s all data it’s statistics that can help us drive these forecasts, but it can help improve the accuracy of those forecasts. I think the better.

The better your data is. And the more data you’ve got, the better your models and algorithms can be around your forecasting. I think it’s something that absolutely grows with time, to start with your first few customers, it really could be finger in the air. This is what I think it is based on market experience, but as you grow with customers and as your customers spend more time with you, I think you get a better idea.

You can also look at how the relationship has changed over time. Are they going to grow? How has that business changed and start bringing these real-world points of data into it. And I think that’s really important to do. And I think it is it’s about opportunities with customers, right?

Yeah. I was going to say, what about the other side of value? Is that the kind of cost side to us? So what about things like customer acquisition costs CAC as we call it, which is a wonderful term and things like cost to serve. What about those?

Jason Whitehead: [00:11:12] Yeah, I think, just looking at lifetime value, if you only think of it as revenue, you really do ignore that the cost equation, because ultimately I think this is a lot around growth and profitability for a lot of organizations and being able to forecast, what types of prospects do I think will frankly just take more of my time to serve them.

They either they have very complex needs, or you can just tell based on the interactions during the sales process, that this is going to be a challenging customer. And typically with I’ve seen the bigger, the deal, the more challenging the customer and in some cases, or most cases, not all, although, and really being able to forecast, is this the ideal customer or is this fun?

It may look like a big deal for some reason, but when we get behind the scenes, it’s not. And I think that’s important. I think another thing that I love seeing more people, my background’s in helping organizations with user adoption and there, and understanding. How the, how gifted is a buyer of software at getting value and adoption of any tool, not just necessarily virtual.

And typically what I see is that when you’re talking with organizations, either they’ve got some good internal adoption practices, changed practices. They know how to get quite a bit of value. I don’t think anyone ever gets full potential value out of it. And then you meet other organizations that consistently they spend a lot of money on software.

They’ve hyped it up. They’ve gotten it live. And then they rip it out 18 months later or less sometimes, or they really cut back on it. Can you start to see some trends there of, they’re just not good at managing to have their teams and their people use technology for full effect. And that’s usually for me, a big red flag that if they’ve been unsuccessful driving adoption success with other systems and they haven’t done any substantial changes, what makes me think they’re going to be successful with the current system and what are the cost implications for me?

Or what are the propensity to churn? And how can you identify that right up front and help them take a different course of action as a result of that

Jason Noble: [00:12:59] information? I think that’s really interesting point because you’ve got to look to be quite often you are replacing some existing platform services or if you’re not, and coming in Greenfield, you’re coming in to replace some existing processes that haven’t worked and haven’t given that value.

So you’ve got to be proactive and make sure. That you’re driving very from day one, but you also driving value from day 180 day three 65 day 720. You’ve got to make sure that you’re continually driving value to make sure that customer lifetime value is there. Because if you forget about that piece and that, as you said, adoption is super important, but once they’ve adopted it, you can’t just walk away.

It’s a continual change cycle that we’re going through. There’ll be new people coming on. There’ll be new things that we’re developing, new business opportunities, new challenges. How do you continue to do that? And I think, again, it goes to this isn’t just about a one-year sale. This is about lifetime, and you’ve got to realize that it requires more from us as well.

This isn’t just the customer, but we’ve got to keep driving this to keep driving the value for them.

Jason Whitehead: [00:14:02] One of the things I used to talk about too when it was early days in the SAS world, is this transition from perpetual use on prem to SAS has really changed the learning curve into a learning treadmill.

And I think, yeah, with the way software changes, so tech so quickly today and a new companies come in and come out so quickly. No, there’s a, you’re on a constant learning treadmill and in a change treadmill that you’ve got a car left.

Jason Noble: [00:14:24] Jason, I’ve known you for over two and a half years now.

And you’ve never said that before. I’ve never had. That’s awesome. That’s be so Ryan, this that’s the only way to think about it. It’s a treadmill that never stops as well.

Jason Whitehead: [00:14:37] Oh that’s why people should keep coming back to the podcast because there’s gold.

Jason Noble: [00:14:43] There is gold there somewhere. We will refer back to this.

That’s brilliant. I love that. The idea of things other than revenue before, but how do you extend the lifetime of a customer? How do you make sure that value is longterm? That lifetime is longterm and it’s not just one, one or two, and I guess the question then is. Who’s job, is it to extend it?

Whose job is it to grow this? And who’s who needs to keep close to the customer lifetime value.

Jason Whitehead: [00:15:11] All big challenges. I think a lot of groups have. And I think part of it too, is, do you also want to, if you have a negative lifetime value, how do you identify that quickly? And then make the decision to remove those customers are encouraged them out if necessary because not every customer will be profitable or not.

Every customer will be profitable in the short term, but maybe the longterm are those strategic ones. But I think part of that really becomes how do you align the rest of your organization on the need to maximize lifetime value for you and your customer? And, so many, we still see say sales sometimes get a bad rap for things that are not their fault, but a lot of sales plans that really push for what’s the initial sale.

And then someone else handles the renewables, or you’re only commissioned off of that. I think being able to track and structure people and commissions that are focused on what’s the lifetime value. And having some sort of ongoing permission structure, incentive structure, whether it’s for the sales folks or for the payer organizations important.

I think this also comes back to how do you, if you’re reporting and measuring perceived lifetime value for you and your customer setting those as target performance goals for everyone in the organization, whether it’s CSMs or support or service or onboarding, whoever needs to be. To say, have we, is there some sort of adjustment to compensation around this or even just, these are the targets we’re aiming for let’s incentivize people accordingly.

But what about you?

Jason Noble: [00:16:26] What thoughts do you have on that? It’s, this goes back to customer success as well. Who, or even who owns the customer, that old question we get asked, and I think it also goes back to the whole ethos around customer success. This isn’t the responsibility of a team.

That thought about growing and extending and having a good lifetime value for our customer. It has to come from the first interaction with them. This isn’t just about a sale. And again, we’ve talked about it on previous episodes days, but it’s not just about landing it and moving away, we’ve got to sell to the right customers.

We’ve got to make sure we’re selling value to them and how that value is going to grow. So this starts, it starts with sales. It starts with marketing. It then comes through to implementation on boarding training. It’s everybody in the business. And you’ve got to have that. Whole business philosophy that we’re all here about our customers.

We’re here to grow our customers and to drive value for them. So the question about ownership, I think goes away. If there isn’t one person or team it’s, the whole business is responsible for making sure that you’re providing the lifetime value your customers want, expect, and need, and that you need to deliver to grow yourselves.

Jason Whitehead: [00:17:31] And, I agree with that. And I think in addition to that too, is setting an expectation with customers of their role and responsibilities for creating their own lifetime value. So if it really is meant to be relationship by the time that you have that conversation with your customer care point have right up front during the sales cycle.

One of the things that I talked about when working with a lot of customer success teams is the idea of it will come as no surprise to your customers that you want them to renew and buy more. They already know this. And so many sales and customer success teams are afraid to just have that conversation.

Yeah, this big elephant in the room. It’s, they’re just talking about it, but having a conversation with a customer, we want to have you for a customer for 20 years or more. And we know the only way that’s going to happen is if you achieve a perceived this amazing value over the course of your relationship with us, let’s talk about what that looks like.

How you and I will work together to make sure you get that. And then we get what we want and then how we keep that moving forward. And I think it’s very different than just saying, Oh, we’ve got to change the sales plan, which may be part of that internally. But you do need to have those other discussions with your customers

Jason Noble: [00:18:28] as well.

I think that’s such a key point because I don’t think people do that. Your initial conversations with customers. You’re not saying, look, we’re about providing you with value over a long term. This isn’t just about today. This isn’t about this year. We’re here as your partners. This is a two way thing.

How do we provide you with value? That’s going to grow and help you achieve your business outcomes and continue to do those. And there’s a need for us also to change and evolve in ourselves. We can’t maintain status quo. You think about the treadmill earlier on, we can’t just stay on that.

The treadmill might suddenly go faster. You might point outwards. It might point downwards. We’ve got to keep it moving, and I think that it keeps moving, but th the, why does it keep movies? Because us as an organization of driving more change and more value for our customers, we’re enhancing what our products and services can do.

And I think you can’t lose sight of that and that keeping those lights on and that internal motion going require significant investment for ourselves. It does.

Jason Whitehead: [00:19:26] And I think also when you’re having those discussions with customers, Part of, it’s gotta be, yes, we want to help you achieve value and I’m going to, but also just be direct and we’re not, we’re not altruistic here.

We’re doing this together. We also need to get value from this relationship as well. And let’s talk about how you can help us create value. Obviously there is the revenue portion and then that’s part of business that is a significant part of it. But then even to ask for the other non-revenue areas that you want.

So we would like to taste that we’d like the references. We would like, as we prove value to one part of your organization for you to introduce us to other parts of the organization, so you can help them get value. And I think having that conversation both upfront, but then from every future conversation and grounding them in that, it’s not just DVR, but definitely knows that we’re here for mutual value and here’s what you said, the value that we’re trying to achieve, you’re trying to achieve and how we can help you.

And here’s the value we’re trying to tell you, how are we both doing and where do we go next? And I think that’s. When you get comfortable having those conversations, it’s a pretty easy conversation to have, but I think a lot of people have a mental block around I don’t know that the customer’s

Jason Noble: [00:20:27] always right.

I think that’s such a key point. And until you really think about this subject, these are points that you might not think about lifetime value for you historically might just be about how much revenue we’re going to get over the next five years for this customer, but there’s a lot more to this.

And I think you’ve got to be prepared. To have these conversations with customers where you’re asking for more information you’d try to understand more about the journey they’re on. What does this mean for them? Where are they going? What are their challenges? And only by doing that, can you really determine how can we continue to provide you with value over this whole lifetime?

And it comes back to the whole thing. This is about value to our customers, as well as our own sellers.

Jason Whitehead: [00:21:07] Yeah. And those value conversations, I was recently. Presenting with a client group of CSMs and sharing with them, some things. And one of the things that always comes out is how many CSMs are just nervous and run.

These conversations are uncomfortable with them and things like that. And from my perspective is the once you get comfortable having a direct conversation, you’ll never have another uncomfortable conversation because so many people get stuck in their own head. And it’s just it’s just a conversation.

Say what you think, ask her what you want, be ready to hear the word? No, because that’s part of it or are you ready? Here’s some information, but the more that you’re just direct, it makes these conversations so easy and it just takes a little practice.

Jason Noble: [00:21:45] It’s a shift, isn’t it? A lot of people don’t do it.

They find it uncomfortable to do, but you’ve got to learn how to yep.

Jason Whitehead: [00:21:51] When I found early in my career, I was all nervous around things like that as well. And in certain conversations I would be nervous and even parts of your personal life, there are times you’re nervous.

Consistently. I was bashed over the head with this a few times, and it really helped us avoiding the conversation and the longer it takes until you have the conversation that, that warm up to it, knowing that it’s coming, it’s always worse than conversation. Yep. And then when you get over that mindset I’m just going to say it, cause I say it now, I say for three weeks from now, I’m going to, I’m going to save the three weeks of stress and then I will get the information needed to deal with it accordingly.

Jason Noble: [00:22:23] Throw it out there. This I think is a whole conversation, another podcast in itself, but it’s that fear of pushing yourself. Yeah.

Jason Whitehead: [00:22:30] And you’re engaging customers differently. Maybe we’ll get to the next ones.

Jason Noble: [00:22:35] Okay. During this has been, I think we’ve come to the end there, but this has been a really cool conversation.

Just to recap as to the bold question, the bold challenge question at the beginning. What bold actions can you take to dramatically increase the lifetime value of the relationship for you and your customer? So hope you found that useful. Have a think about it. If there’s anything that you want more info on, if there’s any questions you’ve got, if any of this you think actually, these guys don’t know what they’re talking about.

Let us know. This is all about a dialogue. We’re really keen to have this, and also to make sure that we’re giving you value as well. So thank you very much, everyone. I thank you for me. They’re in London,

Jason Whitehead: [00:23:08] in banking for me over here in Washington, DC. I have a great day.

 

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