When upper-level management thinks about customer support and customer success, they typically focus on their roles as soldiers working on the front lines to ensure customers are able to gain as much value as possible from the company’s products.
However, in reality, these customer-facing teams, which together are responsible for a company’s post-sale customer experience, not only bring value to customers but also to their employers by contributing to both new and recurring revenue.
One common way that success professionals in particular can help boost the company’s bottom line is through referrals that lead to sales from new customers. Another way that both support and success teams can contribute to revenue generation is by increasing the lifetime value of an existing customer.
What Is Customer Lifetime Value?
As explained by marketing guru Neil Patel, lifetime value is “the projected revenue that a customer will generate during their lifetime.”
Propeller adds a bit more detail to its definition, writing that customer lifetime value is “the amount of value a customer contributes to your business over their lifetime – which starts with a new customer’s first purchase or contract and ends with the ‘moment of churn.’”
(Editor’s note: We’ve seen a variety of acronyms for customer lifetime value including CLV, CLTV, and LTV. For simplicity’s sake, we’ve chosen to use CLV throughout this article.)
Why Does CLV Matter?
As Propeller explains, “Looking at CLV can help you define clear marketing goals and sales strategies to reduce acquisition costs, improve retention, and encourage existing customers to spend more over their lifetime with your company.”
How to Calculate CLV
As described by Forbes contributor H.O. Maycotte, “A recent Entrepreneur article called lifetime value … one of the easiest metrics in business. However, according to an Econsultancy study, only 42% of companies say that they are able to measure customer lifetime value.”
It doesn’t have to be so hard! This formula from Hubspot can help you calculate CLV in a jiffy.
Here are more detailed step-by-step instructions for how to calculate CLV, again courtesy of Hubspot:
“Calculate average purchase value: Calculate this number by dividing your company’s total revenue in a time period (usually one year) by the number of purchases over the course of that same time period.”
“Calculate the average purchase frequency rate: Calculate this number by dividing the number of purchases over the course of the time period by the number of unique customers who made purchases during that time period.”
“Calculate customer value: Calculate this number by multiplying the average purchase value by 1, and subtracting the average purchase frequency rate from that number.”
“Calculate average customer lifespan: Calculate this number by averaging out the number of years a customer continues purchasing from your company.”
“Then, calculate CLV by multiplying customer value by the average customer lifespan. This will give you an estimate of how much revenue you can reasonably expect an average customer to generate for your company over the course of their relationship with you.”
How Customer Support and Success Can Increase CLV
Before we dive into the ways in which customer support and success can impact CLV, let’s ensure we’re all on the same page about the definitions and differences between the two departments.
Customer Support vs. Customer Success
At Squelch, we define customer support as solving individual product issues or providing product guidance for specific customers with the goal of helping them troubleshoot a specific issue or answer questions that may be impeding their use of a service or product.
Customer support often follows a break/fix arc and is generally reactive in nature with the customer initiating the interaction.
In comparison, customer success often focuses on onboarding and proactive engagement with customers in addition to managing renewals and upsells.
Increasing CLV by Increasing Customer Value
As explained above, customer value comprises average purchase value and average purchase frequency rate. Increasing either of these will increase the total customer value, which in turn will increase the overall CLV.
Customer support agents primarily help to increase customer value by increasing repurchases, which translates into a rise in the average purchase frequency rate.
It’s important to note that many companies — including SaaS and other subscription-based businesses — have a pre-set billing cycle, where customers pay for the service each month, quarter, or year. However, there are also many companies that offer products on a more ad-hoc basis, which could potentially be purchased more often.
For this latter group of businesses, the support department is in the driver’s seat to create a stellar customer experience that motivates customers to purchase more in the future.
According to Shopify, these aspects of customer support can have the following impact on repurchases:
- Consistently good service: 32 percent
- Fast, friendly interaction: 25 percent
- No unpleasant surprises: 22 percent
- Service beyond expectation: 12 percent
By providing an excellent experience in the ways mentioned above, customer support can increase the average purchase frequency rate, thereby boosting the company’s CLV.
In contrast to support, customer success primarily influences the overall customer value through average purchase value.
As a result of their deep understanding of and close relationship with customers, success teams are in a unique position to upsell them on an higher-level of service and cross-sell additional products or services.
These types of sales fall into the “Expand” step of TSIA’s LAER customer engagement model, which outlines the “four distinct customer lifecycle objectives” as:
As TSIA explains, “As you become more invested in the customer’s outcomes, it becomes easier to tie your technology to other projects and initiatives, encouraging your customers to buy more products and services from you the supplier.”
Done right, this is a true win-win scenario where customers benefit from new or enhanced services to meet their needs and your business benefits from higher revenue. These upsells and cross-sells also have a direct impact on CLV by helping to boost the average purchase value.
Increasing CLV by Lengthening Customer Lifespan
In addition to increasing customer value, customer support and success departments can impact CLV by lengthening the customer lifespan.
Sometimes company executives dismiss customer support as a cost center. But to the extent that they do think of CS agents as contributing to the business’s bottom line, it’s typically in the context of their role in reducing churn.
(Returning to TSIA’s LAER customer engagement model referenced above, activities to decrease churn fall under the “Renew” step.)
Support agents are on the front lines answering questions and resolving trouble tickets. And the speed and accuracy with which they do so has a direct effect on whether customers stick with your company or start checking out competitors.
Case in point: Mention reduced churn by 22% in just one month largely as a result of a process change in handling support tickets.
“Mention segmented their users according to membership type, prioritizing the help requests of more valuable users. They also implemented a new streamlined system for assigning support tickets…[h]andling support requests in batches every four hours,” describes Casey Armstrong, an expert on customer acquisition and revenue growth for startups.
“These changes alone meant around 50% less time spent on support, as well as higher levels of customer satisfaction for both free trial and paid users,” which contributed to a 22% decrease in churn.
As demonstrated in the example above, by solving issues in a helpful yet efficient manner, customer support can help lower churn. This churn reduction, in turn, increases CLV by lengthening the customer lifespan.
Meanwhile, success professionals are literally responsible for whether customers successfully engage your product or service.
They promote success through developing a thorough understanding of each customer’s needs and goals, then providing personalized training programs and other services to help customers meet them.
(These relationship-building and training activities fall under the “Adopt” step of TSIA’s LAER customer engagement model.)
In addition to helping customers reap greater value from the company’s product or service, studies show that the success department can contribute to lower churn.
“Customer success has an aggregate impact on net retention with those companies with some sort of customer success function seeing at least a 10% boost in net dollar retention compared to their non-customer success peers,” explains Patrick Campbell, founder and CEO of ProfitWell.
“Note though that dedicated customer success, meaning a full customer success organization that’s staffed in an account management fashion, sees an additional 5% bump.”
And some companies have seen even greater results. For example, Hubspot “was able to retain 33% of previously unhappy customers” after implementing a new “concierge onboarding process” complete with access to an assigned Inbound Marketing Consultant, initial crash course on inbound marketing, and ongoing monthly account review.
By ensuring customers’ goals are achieved, customer success can help reduce churn, thereby increasing CLV through a longer customer lifespan.
At Squelch, we understand the essential impact that customer support and success teams can each have on a business’s bottom line, in large part due to their abilities to increase the lifetime value of a customer.
That’s a big reason we believe support and success professionals are a company’s heroes and have made it our mission to be their super-helpful sidekick. Learn more about Squelch or request a demo of our customer experience optimization solution.