12 Effective Ways to Increase Customer Lifetime Value for SaaS

In SaaS, the need to increase LTV is a never-ending hustle, even after achieving profitability.

So what can you actively do to give customer lifetime value a boost?

In this guide, we’ll explore twelve tactics to pump this metric up—from personalizing experiences to offering proactive assistance—and see how they can help you nurture customer retention and growth.

What is customer lifetime value?

Customer Lifetime Value (CLV or LTV) is a prediction of the net revenue attributed to the entire relationship with a customer during their lifetime. It represents the average worth a customer has for your business—so the higher its value, the better.

That said, increasing LTV is not just about acquisition but about ingraining customer retention efforts to make sure users stick with your business for longer (and thus spend more).

How to calculate customer lifetime value?

Customer lifetime value is calculated by multiplying customer value (which is your average purchase value x purchase frequency rate) with the average customer lifespan. The formula then becomes:

LTV = Average Purchase Value x Purchase Frequency Rate x Average Custome Lifespan.

For example, if your average customer spends $50 (average purchase value) in your SaaS tool for every transaction, making one transaction per month (average customer lifespan), and then stays for about 3 years (lifespan = 36 months). Then, your LTV would be $50 x 1 x 36 = $1800.

Why is it important to increase LTV?

In SaaS, increasing customer lifetime value is almost the same as increasing revenue. It can help sustain a steady stream of income in a business model that requires long-term viability to be profitable, bringing a lot of benefits:

• Maximization of revenue. More LTV means you’re squeezing every ounce of profit out of each user, driving your company’s overall profitability.
• Elevating customer loyalty. A higher LTV often correlates with a satisfied and loyal customer base, which often leads to positive word-of-mouth.
• Efficient allocation of resources. Knowing the LTV allows you to invest appropriately in marketing efforts, potentially reducing customer acquisition costs over time.
• Unlocking sustainable business growth. An increased LTV often corresponds with a steady, predictable revenue stream that can fuel sustained business growth.

12 Tactics to increase LTV in SaaS

LTV is great and all, but how do you increase it?

More than just upselling, increasing LTV is mostly about retaining customers, expanding your referral network to reduce customer acquisition costs, and providing an outstanding product experience.

So, let’s go over 12 tactics that any SaaS can implement to directly (and indirectly) increase LTV.

Build personalized experiences to drive long-term engagement

Personalized experiences can engage users more—and thus retain them for more lifetime value.

For this, collect customer data such as JTBDs, use cases, pain points, and job titles to provide an onboarding process that’s relevant to their needs.

The sign-up process is a great opportunity to collect data. For example, you can add a welcome screen to ask new customers about their preferences, goals, and JTBDs. And then use this data to introduce relevant features, trigger notifications, and provide personalized content during onboarding.

Use interactive guidance to increase product adoption

Another way to increase customers’ value is to help them adopt your product through interactive guidance, such as in-app tutorials, guides, and videos. This way, users can experience the product value while learning how to use it.

For example, instead of showing a generic product tour that users are likely to skip, you can implement an interactive walkthrough to:

• Hand-hold users step by step with progressive onboarding.
• Respond to in-app behavior in real-time.
• Avoid overwhelming users with information they won’t retain.
• Enhance their learning experience.
• Improve product adoption.

A/B test different in-app flows to improve engagement

A/B testing is an excellent tool to understand what drives in-app engagement (which correlates with higher LTV). You can take two versions of an in-app flow (A and B), and see which one leads to better performance.

For example, you can perform head-to-head A/B testing to test a new feature announcement modal—one with an intro video tutorial and the other with an interactive walkthrough.

You can use a tool like Userpilot to not only perform the test, but also to get statistically significant results that can tell which version is better at driving new feature adoption.

Remove friction to enhance customer experience using funnels

Funnel analysis allows you to watch how users move through the stages of the user funnel. It can help you improve average customer lifetime value by identifying areas of friction that are hindering the product experience.

To use it, you first need to set up the steps within the funnel—which can start with visiting the signup page and finish with the last step of the onboarding process.

With a well-designed funnel (and product analytics to track it), you can then see what step has the highest drop-off rate—and fix it.

For example, if users are having a hard time during the onboarding process, you can start adding in-app guidance or updating the UI to make it clearer and enhance the product experience.

Identify what brings value using path analysis

Path analysis is particularly useful for improving LTV, as it allows you to identify the happy path and understand the ideal journey where users can achieve success with minimal obstruction.

With Userpilot, for instance, you can do this by:

1. Setting starting action and conversion criteria. For example, unique users who sign in to your app.
2. Adding the number of steps you want to track after the starting point.
3. Identify the top path that leads to success.
4. Direct other users toward the same path.

With a repeatable process to achieve success, you can, for example, create and trigger in-app guidance to pull other users into the happy path and increase the number of successful customers.

Collect customer feedback to understand and address their pain points

To really increase LTV, you need to both collect feedback and act on it—neither can work without the other.

In-app surveys such as NPS, CSAT, and CES are incredibly effective at gathering feedback from active users. They can ask users about an experience they had a few moments ago, plus they’re short, easy to answer, and best of all, can trigger automatically.

Many customer feedback tools can help you do this. Once you’ve gathered enough data, you can analyze the results deeply to prioritize opportunities for improvement and focus on addressing your customer’s pain points.

Analyze how your most engaged users behave to find retention drivers

Trend analysis is another tool with the potential of unveiling data that can help you strengthen customer retention (and increase their value).

It provides insights into what features are more popular among power users, how they tend to behave when new upgrades drop, or any other type of trending behavior.

To start, track the product usage of different features and correlate their trends with users from different plans. Monitor how their usage change over time, then identify which features are mostly used by customers with higher or lower plans.

Learn everything you can and replicate patterns through the rest of the product experience. This can include nudging users on lower plans to engage with popular features or tweak other features to resemble a similar UI, speed, and so on.

Use secondary onboarding to deliver continuous value for existing customers

Secondary onboarding is the next onboarding phase of your primary onboarding. It can drive feature discovery and product adoption as it introduces advanced features and leads an existing customer to use your product to its full potential.

Essentially, secondary onboarding educates customers about advanced, relevant features so they can stick around for longer—and thus contribute to your LTV.

For example, if you want to introduce a scheduling feature to active users, you can add an in-app checklist to guide them through creating a schedule, adding tasks or deadlines, and activating notifications.

Segment customers to trigger contextual upsell prompts

Generating more upsells is a straightforward way to increase LTV.

However, you can’t just push random upgrading at every corner of your app and expect it to improve the user experience. It’s important to show the right upselling message to the right user at the right time.

For this, you can segment customers based on usage patterns, engagement, subscription tier, and their journey stage. And then trigger personalized upgrade offers depending on their profile—driving account expansion constantly.

For example, if a user has finished the onboarding process and reaches the usage limits of your freemium plan. Then this can be a great opportunity to upsell a premium plan where the limit is off.

Learn from loyal customers to increase average customer lifespan

The best way to increase your customer’s lifespan is to observe your loyal customers. What features are popular among them? What are their survey responses? What’s making them stick around and develop trust with your business?

This way, you can spot what makes them stick with your product (a.k.a “loyalty drivers”) and replicate the same experience to the rest of your user base—cultivating strong customer relationships.

For example, if your analytics show that loyal users tend to use a feature in a specific way (and it leads them to success), then you could educate the rest of the customers to use it in the same way so they can hopefully experience the same value.

Offer proactive help to increase customer satisfaction

Offering proactive help can potentially reduce friction and make users feel more satisfied with your product (which equals more customer lifespan).

For this, start by segmenting customers based on relevant criteria such as their survey responses, in-app behaviors, and stage in the journey. Then use a customer success tool to trigger contextual messages to guide users toward their goals or get them back on track when they deviate.

For instance, if customers express they have problems understanding a feature via a CES survey, you could trigger in-app assistance to those users who answered negatively so they can get another shot at it.

Offer better customer service using an in-app resource center

Just like offering proactive help, self-service support can also lead to better satisfaction levels and increase customer’s lifespan in the process.

For this, an effective in-app resource center will do wonders, as it prevents users from exiting your app to solve their issues (experiencing friction in the process) while also providing exceptional customer service.

The process can be quite simple:

1. Analyze customer feedback to identify recurrent issues.
2. Send customer satisfaction surveys to your users, review your support tickets, and examine your usage data to see what’s causing friction and pushing customers away.
3. Create help resources in different formats to directly tackle these challenges. It can include FAQs, tutorial videos, step-by-step guides, or help articles.
4. Organize your resources in content modules so users can find resources that are relevant to them (instead of having to browse through messy documentation).

Conclusion

When you increase LTV, your business’s bottom line also benefits directly.

As we learned from these tactics—from employing A/B testing to offering great customer service—you can actively work to improve customer lifetime value as long as you measure it correctly.

This process is an ongoing, iterative process that will require special tools to perform. So why book a Userpilot demo to see how you can drive customer engagement automatically?