Can B2B companies embrace customer lifetime value (CLV) metrics? Part 1

B2B and CLV - image showing customer feedback

If you come from a B2C background, the B2B space can seem as dark and unforgiving as the cave in Empire Strikes Back.

But things are changing…

We have already discussed how B2B is moving forwards. There is a definite trend towards more digital interactions and self service. A recent Mckinsey survey stated that B2B sales leaders now believe that digital interactions are twice as important as they were before COVID.

While it’s very clear that the pandemic has ushered in momentous change in B2B, it could be argued that this change might have occurred naturally anyway. If that is the case, do B2B companies have to rethink the metrics they use? One metric they could make more use of is customer lifetime value (CLV). 

But CLV is deceptive. It’s conceptually easy to grasp, but it can be difficult to apply properly.

In part 1 of a series, we explore CLV and how B2B companies can begin to use it…

what is customer lifetime value - image of a customer paying for a product.
Photo by Blake Wisz on Unsplash

What is Customer Lifetime Value (CLV)?

The simplest customer lifetime value formula is the total average order multiplied by the average number of purchases and then multiplied by the average retention time, usually in years. This provides a broad average lifetime value of a customer.

When most businesses think about customers, the focus is immediate. Companies look at “how many widgets can I sell today” and their marketing tends to reflect this.

Organizations with a CLV focus work a bit differently.

In some respects CLV is a perfect B2B metric. It is long term, it measures the value a company receives during an entire relationship and it can quickly highlight the customers who are most valuable for business growth.

But this is where the changes mentioned previously come into play. If the B2B space is starting to become more similar to the B2C space, can B2B businesses apply CLV correctly? Especially with complexities involved with the typical B2B purchase funnel.

So yes, CLV is easy to understand. But this ease can mask some of the challenges that can lie in wait for the unaware. Just like the Star Wars cave mentioned above.

Luckily we can shed some light on what you can do to fully utilize CLV.

Customer lifetime value starts with humans - Image of a crowded crossing
Photo by Ryoji Iwata on Unsplash

It Starts With Humans

If someone works in B2B procurement, should we assume that they do not have the same customer experience expectations in their professional life as they do in their personal life?

Yes B2B is different, but it is as subject to demographic change as any other niche. People working in the B2B space now tend to be younger, digitally savvy with high customer experience expectations. The facts are stark in this report; “96% B2B buyers say customer experience directly affects whether they will buy again.” But as this Salesforce report states, “only 27% of respondents say companies excel at meeting their standards for an overall B2B experience”.

So it is about time that B2B companies revolutionize how they deal with B2B customer experience. But it has to be said that the B2B purchase funnel is radically different. So how do B2B companies evolve their digital experiences?

The answer lies in putting not just customers, but all humans, at the center of the business.

This is a long process that we have spoken about before. It involves changing your organizational culture as much as it involves customer experience (CX).

However, speaking specifically to the CX aspect of being human centric, this involves thinking about anyone involved in the B2B buying process. Not just your usual end customer, but also other stakeholders that want to see value.

By conducting research on the humans involved in the buying process, including analysis of their behaviours and needs, you build a customer-centric foundation. This will then allow you to segment, customize and deliver better digital experiences.

It will also have an impact on CLV.

By becoming customer centric you will also discover new types of customers that could prove to be more valuable to your business. This will have a long-term impact on how you view your CLV metrics. Plus, by serving better experiences to all humans in the purchasing funnel, you can better retain your current customers. Which will improve your average CLV across the board.

CLV, when used properly, can impact every metric in a business. But only if that business really commits to being customer centric.

Actions You Can Take:

  • Begin to humanize your business
  • Think about every human in the purchasing journey, not just end customers
  • Break down silos in your own organization
  • Talk to customer facing staff
  • Think about the relationships you have with your customers, how long do they last?
  • Segment your customer data to begin discovering all the people involved in an average purchase

Come back for part 2 next week where we will talk more about adopting CLV, the technical challenges it can bring and how you can begin to solve those challenges.

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If you need help adapting your B2B organization to the new expectations of your customers, talk to MAQE. MAQE are personalized commerce specialists that can help your B2B business create new digital purchasing experiences. Get in touch with us via [email protected].