What Is The Relationship Between Customer Retention And CLV: A North Star Metric For Your Business

Certain metrics determine the foundation of the business whether these are SaaS or B2B businesses from some other verticals. Notwithstanding, the goal of the businesses is to generate revenue and retain customers for the longest time possible. For the potential revenue generation, there has to be a consistent stream of revenue being generated and thriving as well.

Speaking of that, we have two important metrics i.e., customer retention and customer lifetime value also known as CLV.

In this article, we are going to look at the two most important metrics i.e., customer retention and customer lifetable value along with their relationship with each other.

Customer Retention and Customer Lifetime Value

The customer retention metric determines the rate of how long customers keep using your product. The customer retention rate is linked to the factors such as customer experience, product value, and customer support delivered by the support and customer success teams.

Whereas customer lifetime value shows the revenue earned from a customer throughout the life cycle of that customer. Customer lifetime value is not only important from the perspective of customer retention but it also shares important relation for determining Return On Investment (ROI).

Hence, we can say that customer retention, customer lifetime value (CLV), and ROI are closely interlinked to one another and each determines the other metric.

CLV – Driving Decisions Based On Different Models

Calculating customer lifetime value is important as it gives roots to other value metrics for your B2B or SaaS business. It will not be wrong to say that having a greater customer lifetime value means reducing churn. Thence, if you calculate customer lifetime value you are also getting a hint of the churn score and churn rate of the business.

When we calculate customer lifetime value, different models can be used to study and analyze customer lifetime value. To enlist the name of models, the following are some of the models:

• Descriptive model
• Predictive mode
• Operational model

Descriptive Model

The descriptive model for calculating customer lifetime value entails manually analyzing and studying the data based on the consumer history, especially about usage. Analyzing the consumer historical data give enough useful insights about the customer lifetime value and also for understanding the probability of chances a customer will be retained and will deliver the revenue stream.

As this model uses a bit of the traditional approach, the operational model uses automation at the greater level which we will discuss further.

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Predictive Model

Now once the descriptive model has been used, we come to the predictive model that determines the customer lifetime value with special reference to the future using historical data. As the name suggests, using a predictive model we can study the chances of customer behavior with the product and the likelihood if the customer will use the product or not.

The predictive model is vital to understand prospects and revenue generation from the website.

Operative Model

As we mentioned earlier, in the operative model we study customer behavior using automation – so in this model, Artificial Intelligence and machine learning is incorporated for studying customer behavior based on some Key Performance Indicators (KPIs).

For an instance, the customer retention platform or software will use an operative model for making predictions for customer retention and customer lifetime value from that very customer.

In SubscriptionFlow, merchants can set the factors to monitor and analyze churn. Using artificial intelligence and machine learning, the software studies the historical data, churning factors, triggering events along with some other factors and product results for customer retention and CLV analysis.

Directly Proportional Relationship Between Customer Retention And CLV

The query about the relationship between customer retention and customer lifetime value is that both are directly proportional to each other. Customer retention is directly proportional to CLV i.e. when the rate of customer retention grows, customer lifetime value automatically increases.

Now you know that both of the metrics are curial to the growth of the business.

Let’s look at some of the factors that clarify more about why you need to maintain a good rate of CLV.

Data-Driven Resource Management for Sustainable Growth

If you generate data for good customer lifetime value then you will high margin to invest in more resources for acquisition, upgradation n for your inventory and services, customer retention, and much more. Therefore, with higher customer lifetime value and revenue generated from that, you will lead to sustainable growth with higher ROI and an optimized budget.

Better Product Assortment

Identifying your best products is identifying the products that will drive greater revenue for your business. studying customer retention, analytics, and insights into user behavior and user engagement with the product the merchants can soon understand the products that are of high value to the customer.

The data of the loyal customers and analytics help you understand and categorize the products that are useful to the success of the business.

The growth of the business is largely determined by satisfying the customers with what you deliver and the value of those products.

How Can SubscriptionFlow Help Your Business Achieve a Higher Customer Retention Rate and CLV?

SubscriptionFlow is a subscription management platform that has recently launched its app known as RetentionFlow. The app is exclusively designed for retention management and increasing customer lifetime value.

Not only this but the app also studies the churning factors along with the user engagement that helps merchants notice the level of product engagement and user.

It is pretty obvious that if we retain the customers then we will automatically boost up the Customer lifetime value. Using SubscriptionFlow’s app you can apply appropriate customer retention strategies using software such as offering your existing or leaving customers with offers like discounts, vouchers, gifts, etc.

Improve your customer retention rate and customer lifetime value with SubscriptionFlow.

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