Customer Success and the Relationship with LTV | How to Maximize LTV?

2. What is LTV? What is its relationship with customer success?

Overview of LTV

"LTV" stands for Life Time Value, which refers to the revenue calculated from the time a customer starts purchasing or using a company's services or products until the end of their relationship. It can also be seen as a measure of how much value a customer holds for a company.

LTV is an indicator that helps companies make strategic decisions to acquire and retain customers. To increase LTV, strategies are needed to increase customer retention rates and increase customer purchase amounts.

Relationship with Customer Success

LTV is an important indicator, especially when measuring long-term cost-effectiveness. Acquiring new customers requires more costs than maintaining existing customers. Therefore, it is important not only to satisfy existing customers, but also to encourage further purchases.

Therefore, as a proactive customer support approach rather than a passive one, "customer success" becomes an important task. And in order to maximize customer benefits, customer success focuses on actively engaging with customers and LTV is considered an important indicator.

Calculation Method for LTV

There are several methods for calculating LTV, but the basic ones are as follows.

LTV = Average Unit Price x Purchase Frequency x Continuation Purchase Period

There is also a method for calculating the cost of acquiring and maintaining customers.

LTV = Average Unit Price x Purchase Frequency x Continuation Purchase Period - (Customer Acquisition Cost + Customer Retention Cost)

There are several methods for calculating LTV taking into account the cancellation rate of subscription-based services, including the following:

LTV=ARPA (Average Revenue per Account=Average Monthly Unit Price per Customer) ÷ Churn Rate (Cancellation Rate)

Example: If a company with a monthly transaction amount of 1 million yen and a company with a monthly transaction amount of 100,000 yen cancel their contract, the churn rate will not change if we consider them as the same company. However, in terms of ARPA, the impact of a company with a monthly transaction amount of 1 million yen on LTV will be greater than that of a company with a monthly transaction amount of 100,000 yen. Therefore, by prioritizing the company with a monthly transaction amount of 1 million yen, we can aim to maximize LTV.

In addition, there are other methods for calculating LTV, such as the following.

・LTV=ARPU (Average Revenue Per User) x Gross Profit Margin ÷ Churn Rate (Cancellation Rate)
・LTV=Average Purchase Price per Customer x Average Number of Purchases
・LTV=Total Annual Transaction Amount per Customer x Revenue Rate x Number of Years of Customer Retention
・LTV=(Revenue - Cost of Goods Sold) ÷ Number of Purchasers

3. How to Increase LTV

Onboarding

Onboarding is the initial support to help customers familiarize themselves with products and services. It means providing support until customers can use and manage the products and services independently. This is a measure to prevent users from stumbling during the introduction of products and services and to continue the contract. If this does not work well, there is a possibility that the cancellation rate will increase. Specific measures include self-onboarding measures such as step emails and tooltips, as well as kick-off meetings with high touch. It is also important to understand the customer's steps with high touch and incorporate them into tech touch, as the required workload and procedures may vary depending on the product or service.

Regular Follow-up

In a subscription-based business model, not only acquiring customers but also long-term contract continuation leads to profits. Therefore, it is necessary to have regular follow-ups and interactions. As an approach to maintaining customer satisfaction, measures such as learning videos, emails for new feature releases, and regular goal releases are implemented within regular follow-ups. As the product grows, tech-touch oriented customer success measures also become important.

Upsell and Cross-sell Proposals

Upsell and cross-sell refer to the practice of proposing upgrades to current products or services, or offering related services, in order to increase customer value. This is a strategy for existing customers and is more efficient than acquiring new customers. The key to successful upselling and cross-selling is setting medium to long-term goals. Specific strategies include hosting service utilization seminars and sharing success stories. Ultimately, making proposals through high-touch interactions often leads to successful upselling and cross-selling.

Segmented Approach

Segmentation is the process of grouping customers based on specific attributes or characteristics, and taking different approaches for each segment. Since customer needs vary depending on their attributes and behaviors, using the same approach may not be sufficient or appropriate for all customers. Therefore, segmentation allows for sending tailored messages and proposals based on customer characteristics, aiming to improve customer satisfaction and loyalty. There are various ways to segment customers, such as by customer attributes (gender, age, occupation, etc.), customer behaviors (purchase frequency, usage frequency, duration of use, etc.), and customer needs.

Product Improvement

Improving products and services is crucial for maximizing LTV. By improving difficult areas based on customer feedback and adding new features, we can increase the contribution to achieving customer goals and solving issues. Product improvement is an important strategy for generating profits through continued use.

Introduction of Chatbots

By utilizing chatbots, it becomes easier to strengthen communication with customers and increase customer satisfaction, leading to easier maximization of LTV. Chatbots have the following features:

1. Available 24/7 Support
Our chatbot is always running, so support is available 24/7. Being able to receive support anytime a customer has a problem leads to increased customer satisfaction.

2. Quick Response is Possible
Chatbots are basically automated response systems. Therefore, they can address issues more quickly than human responses. This can reduce customer stress and increase customer satisfaction. Additionally, it can lead to cost savings by solving problems more efficiently.

3. Customized Services Available
Many chatbots utilize AI technology, allowing them to analyze customer preferences and needs based on conversation content. This makes it easier to provide customized services. By offering the services and products that customers are looking for, it is possible to increase repeat rates and improve LTV.

Review Implementation

Conducting reviews is an important task for improving customer satisfaction and maximizing LTV. Specifically, regular surveys are conducted to gather feedback on product satisfaction and dissatisfaction. While there are tools available to understand customer usage, surveys are necessary to understand their emotions. It is important to take measures to improve low ratings, but reflecting customer opinions can also lower churn rates and potentially lead to the provision of high-quality services. It can also create a positive impression on customers.

Improvements to Easy-to-Understand Manuals

Creating manuals is one of the most important elements in customer success strategies. If an effective manual can be designed, it has the potential to increase engagement. On the other hand, if a manual is difficult to understand, it may decrease motivation towards the product. It is necessary to analyze whether the manual properly supports the user.

User Community/Study Group/Training Content

A user community can be considered as one of the measures for customer success. By having a user community, user engagement and loyalty can be improved. The launch of a user community can be done by building a company website or by utilizing existing services. The purpose of a user community is not only to solve issues, but also to promote interaction among users across industries and deepen their understanding of products and services. In addition, by obtaining the latest information from vendors and being able to make improvement proposals, user motivation can be increased. User communities vary depending on the size of the company and the form of the customer department, but they are often established by setting up an office and recruiting members.

Health Score

The Health Score is an indicator that measures whether customers will continue to use a company's products or services. It visualizes the customer's usage status by comparing it to their health status. By measuring and quantifying factors such as retention rate, upsell rate, and inquiries to the support center, it can be roughly determined that healthy and long-lived customers are likely to continue using the company's products, while unhealthy and short-lived customers are likely to cancel their subscriptions. By accurately understanding the usage status, appropriate actions can be taken for each customer, and by monitoring the Health Score, signs of customer cancellations can be detected in advance and actions can be taken. This can help reduce the workload of customer success operations.

Collaboration with other departments

The Customer Success department, which is a close presence to the customers, actively collects customer feedback and provides feedback to various departments such as sales and development. This allows for improvements to be made to products and services, increasing their value to customers. In other words, building a system for departments to collaborate and creating a situation where collaboration is easy can also lead to maximizing LTV.