Your lifetime value (LTV) is your most important key performance indicator. It’s the metric you use to measure the overall success of your subscription brand, so naturally, you want to increase it.
When it comes to increasing LTV, many brands get distracted by quick tactics that produce short-term gains but fail to create much revenue in the long term. Instead of chasing revenue spikes (which is exhausting and expensive), it’s wiser to make broad changes that have the most significant impact.
This article gives a quick rundown on LTV and explains foundational solutions that produce sustainable, long-term revenue.
Lifetime value, or LTV for short, is the amount of revenue you expect a customer to generate for a brand throughout their lifetime as a customer. In other words, it's the total value a customer brings to a business over the long term.
Quick example: Suppose a brand sells a $30 snack box, and the average customer subscribes for 12 months. The lifetime value of a customer for this brand would be $30 x 12 = $360.
LTV is a crucial metric for revenue growth because it’s usually easier and less expensive to retain a customer than acquire a new one. You can focus on keeping customers happy rather than chasing new leads.
Lifetime value, or LTV for short, is the amount of revenue you expect a customer to generate for a brand throughout their lifetime as a customer.
Plus, customers with a high lifetime value tend to be more loyal and engaged with a brand. They're more likely to refer friends and family, leave positive reviews, and become brand advocates. These advocates will generate more revenue over time and help bring in new customers, further fueling revenue growth.
Increasing LTV comes down to three main actions: 1) Keeping customers subscribed longer, 2) Convincing them to buy more expensive subscriptions, and 3) Convincing them to buy more subscriptions, securing more renewals, and increasing their order size.
Let’s talk about how you can achieve that.
Your first step is to audit your subscription experience with the eyes of a subscriber. Is it simple? Does it require too much management? Are there any points of friction that might make someone decide to cancel?
“It’s so critical to audit your subscription experience,” said Brandon Amoroso, founder, and president of Electriq, in our Subscription Ecommerce Live session. “Everybody should go through their subscription experience and try to look at it as if you aren’t somebody who's really attached to the brand.”
Obviously, that’s hard if you’re close to the brand, so to provide a better experience, you should have lots of conversations with real customers.
Next, create a sense of community. Your subscribers are more likely to stay subscribed if they feel part of something. Serve entertaining and educational content. If you can, create ways for subscribers to engage with other subscribers, maybe with a forum or private Facebook group.
Finally, listen to your customers and accept their feedback. Identify their pain points and provide solutions. If they care about calories, include calorie values for each item. If they care about sustainability, include product sourcing information.
ARPU helps with the subscription experience by giving subscribers control of their subscriptions without logging into an account portal. Subscribers can buy 1-off products and subscriptions, gift products to their friends, delay subscriptions, and even swap variants.
Focus on finding the customers who align with your brand the best. These people will stay subscribed longer because they want what you’re selling. You don’t have to convince or trick them into buying.
“If you’re bringing in people from the beginning that are a good fit for what you’re offering, all of this becomes easier,” said Joelle Goldman, co-founder of Churn Buster, in our Subscription Ecommerce Live conversation. “If you’re bringing in anyone who will click the button, you’re going to be putting out fires left and right. You’re not going to know what’s working and what's not. You’re going to be comparing a good-fit customer to a bad-fit customer, and they’re going to do completely different things at every step, and you’re not going to know why.”
Focus on finding the customers who align with your brand the best. These people will stay subscribed longer because they want what you’re selling.
Admittedly, getting buy-in from your leadership on this point can be challenging. They want to see more subscriptions, after all, so telling them to ignore specific opportunities can be a challenging conversation.
Churn can be active or passive. Active churn is when customers deliberately cancel their subscriptions because they don’t want to buy anymore. Passive churn is when their subscription gets canceled unknowingly due to their payment details.
Credit and debit cards expire or get renewed all the time. If customers forget to update their payment details with you, their subscriptions will lapse. In these cases, you need a dunning process to get new payment information, so their subscription continues to renew.
A dunning process is a series of emails (or other notifications) that prompt customers to return to their account portal and submit a new card. Check out our conversation with Joelle Goldman to learn more.
If a subscriber is happy with their subscription experience, there’s a good chance they’re willing to purchase more products or subscriptions from your company. But you have to deliver offers!
After a few renewals, send upsell and cross-sell opportunities to your subscribers. You can offer 1-off products or subscriptions to new products.
Just make sure to personalize those offers. Use what you know about each subscriber to promote upsells that make the most sense for them. For instance, if you know a subscriber cares about their health, they might be interested in healthy snacks, but they probably wouldn’t buy sugary snacks.
How do you personalize your offers? By building profiles on each customer. With a tool like ARPU, you can create offers based on current subscription items, renewal count, and any tags you assign to the subscriber in your marketing automation platform.
Your subscription experience is never complete. There are always ways to improve it, and everyone in your organization should understand that you want to improve your subscription product continually.
Sadly, many executives don’t want to enhance the experience because it can be a significant investment that may not have precise, direct results. It can also take a long time for the ROI of some improvements to appear.
Nevertheless, creating a culture of improvement in your organization is essential. Encourage everyone on your team to listen to customers for ways to make the experience better. Create a centralized place for them to store ideas, data, and information. Talk freely about ideas and problems across all levels of your company.
Your subscription experience is never complete. There are always ways to improve it.
Then, run experiments! Lots and lots of experiments. Test new ideas and measure their impact on your revenue and customer satisfaction. You should even test what you think you already know to ensure you’re always making good decisions.
Notice that the five steps outlined above are not simple or quick to implement. They require profound, foundational changes in your business. They must be built into the fabric of your company from the ground up. But if you take them seriously, you’ll find the right customers who stick with you for the long term, which will profoundly impact your revenue.