As a business wanting to boost profits, focusing on getting new customers seems like the most logical step. But what if the answer to profitability has been there all along, in the form of your existing customers?
Engaged customers are more likely to purchase from your business more often as well as increase their order value. Happy and active customers are also less likely to churn, meaning you’ll keep those customers over the long term.
Maximising the value of existing customers is made possible through a process called customer value optimisation (CVO).
By undertaking CVO measures, you can achieve higher revenues per customer, all while developing stronger relationships with your customers.
If you’re in search of customer value optimisation solutions for your business, the experts at Distribute Digital can come up with a tailored strategy on your behalf.
For now, here’s what you need to know about CVO including what it involves and how your business can benefit.
In this Guide:
- What Is Customer Value Optimisation?What Is Customer Value Optimisation?
- What Does ‘Raising The Value of a Customer’ Mean?What Does ‘Raising The Value of a Customer’ Mean?
- How To Create A Customer Value Optimisation StrategyHow To Create A Customer Value Optimisation Strategy
- How Can My Business Benefit From CVO Efforts?How Can My Business Benefit From CVO Efforts?
What is Customer Value Optimisation?
Understanding customer value optimisation can get complicated. So let’s make things super simple.
We’re all familiar with the notion of making home improvements to increase the value of a property. For instance, adding extra rooms, improving energy efficiency or adding a new kitchen. All of these things take something that already exists to maximise the potential value through tried and tested formats.
Customer value optimisation works much the same, only for your business. That is, taking steps to drive more value out of your existing customers by encouraging repeat purchases and similar conversional actions. When a customer spends more with you, this increases their customer lifetime value (CLV).
So in a nutshell, customer value optimisation involves taking actionable steps to increase your existing customer lifetime value. As in, it’s not a method of attracting new customers, but rather engaging with your existing ones to drive up their value to your business.
What Does ‘Raising The Value of a Customer’ Mean?
As a business owner, you are likely familiar with the analogy that it costs 3x more to gain new customers compared to selling to an existing customer.
Simply put, you’ve already done the legwork to attract an existing customer in terms of your marketing and sales strategy. In contrast, if someone is only a sales prospect and not yet a customer, it takes a lot of effort to convert them, which ultimately costs more money to do.
Therefore, raising the value of existing customers is looking to not only maximise profit for your business, but to do so in the most cost-effective way.
Make no mistake that gaining new customers remains important. However, it is a common mistake to only focus on acquiring new customers, rather than maintain the relationship you have with your existing ones. Neglecting your existing customers leads to higher rates of churn, as well as more costs to attract new customers.
Good Value Vs Bad Value Customers
Not all customers are created equal, which is why it’s important to know that customer value optimisation focuses on encouraging so-called ‘good value customers’.
Since we’re discussing how valuable a customer is to your business, think about what they actually bring to the table.
For example, a bad value customer is one who will make a purchase and never do anything after it. Even worse, they return the order, wasting your time and money. Customers like these are hard for you to make a profit on because they don’t provide any value to your business.
If you were to raise the value of this customer, they might start making more purchases. They keep coming back for more, placing larger orders and rarely return anything to you. This allows you to make more profits and continuously rack up some impressive sales figures.
So, raising the value of a customer is all about making them contribute more to your business. That is basically what customer value optimisation is all about—creating a system that fills your business with high-value customers.
How To Create A Customer Value Optimisation Strategy
If we go back to our house renovation scenario again, consider the process behind insulation for a second. When you want to insulate your home, it’s essential to find where the energy leaks are so that you can plug the gaps.
Creating a customer value optimisation strategy also looks to plug gaps, but in terms of lost revenue potential with your existing customers. Crucially, where you are missing opportunities to get them to spend more with you.
Any CVO strategy can be broken down into the following steps:
- Identify your audience
- Use targeted advertising
- Create a lead magnet
- Push your other products
- Provide a way of maximising profits
- Develop a return pathway
We’ll now break down every step in this process to help you understand how to implement a customer value optimisation system in your business.
Step 1: Identify Your Audience
Firstly, you need to begin by identifying your audience. Who are you trying to target with your marketing strategy?
Primarily, the purpose of CVO is to target the high-value customers we mentioned earlier. These are the ones that are most likely to be interested in what you sell. There’s no point wasting time and money on low-value customers because they aren’t ever going to help you make profits.
Think about the type of consumers that will be very interested in what you have to offer. They are highly likely to buy something, meaning they have already done research into your product type. They may have bought similar things before as well.
P.S. Unsure of who your audience is? Ask our digital marketing experts for advice.
Step 2: Use Targeted Advertising (Segmentation)
A critical part of customer value optimisation is using adverts that are targeted at your main audience. These ads have been tailored to them; they offer solutions and answers to the problems they currently have.
It’s a really good idea to use channels such as Google Shopping Ads as part of your CVO strategy because you present your products to people who are actively searching for them. Social media ads are also extremely effective at generating traffic to your site. Not only that, but they generate traffic that’s interested in what you offer.
Make sure that all of your ads provide a customer value proposition. This is something that gives your product more value. It’s a way of encouraging people to click on the ad because they feel as though they’ll get more than they would from a different brand.
Step 3: Create A Lead Magnet
A lead magnet is something you use to gather contact information from leads. It can be a free gift, a discount code; or anything that’s not a product yet which encourages people to submit their contact details to you.
You will need a long list of contacts and email addresses as it helps with remarketing later down the line. When you’ve got people’s details, you can send them emails or personalised marketing material designed to encourage them to become repeat buyers. As such, they’re more valuable customers to your organisation.
Similarly, you could also create a tripwire offer. This is an initial offer that gives customers a discount on a product/service. It’s okay to sell this offer at a loss! The main aim is to generate some first-time customers and gain a large contact list.
Step 4: Push Your Other Products
When someone has bought something from you, it’s time to up their value by pushing your other products towards their attention. These products will be the more expensive items that you can make a lot of profit on. They’re hard to sell to cold prospects, but once someone has already had a positive experience with your business, they’re more than likely to be interested.
The key is to look at your customers and learn as much as you can about them. Again, thanks to modern technology and cookies, you can understand so much about a person’s browsing history and buying habits. This allows you to pinpoint the products most suited to them, pushing them towards your customers through email marketing, texts or even just more display ads.
The idea is to encourage customers to not only come back but to come back and spend more money.
Step 5: Provide A Way Of Maximising Profits
As we’ve mentioned throughout this guide, CVO is all about making a customer more valuable to your business. Repeat purchases are one way of ensuring this happens, but another way is to simply increase the money they spend with each purchase.
To do this, you need to provide a way of maximising your profits from every customer. A simple solution is to copy the Amazon method.
Go to Amazon right now and click on a product. It can be literally any product you see but have a look at the rest of the page. Immediately below the product, Amazon will usually list a few other items and tell you that they are ‘frequently bought together’ with this item. There’s even a handy button to add all the items to your basket.
This is such a clever method of generating more customer value. Instead of just buying one thing, they buy multiple things that all relate to one another. It actually improves the experience for the customer as well; they can get more from their purchase with these extra items!
Another idea is to generate more profits by selling add-ons. Again, this is another Amazon tactic – but loads of other brands use it too. When an item is added to a basket, the customer is prompted to buy some additional things. Specifically, this could include insurance or an extra warranty. Once more, these add-ons encourage more money to be spent, optimising the value of this customer.
Consider many other ideas that are like these; you want to maximise profits from every purchase, while still maintaining a customer-focused approach.
Did you know?: Research has shown that the probability of selling to an existing customer is 60-70%. However, this probability of landing a sale shrinks to just 5-20% for new customers.
Step 6: Develop A Return Pathway
Lastly, you need to develop a return pathway. Fundamentally, this is what we’ve been speaking about a lot during these stages. It’s the idea of encouraging customers to make more transactions, rather than buying one thing and never returning.
Your focus is to continue communicating with your customers to entice them into coming back and spending more money. A few ways you can do this include:
- Email marketing
- Retargeting
- Exclusive offers for existing customers
- Loyalty bonuses – this is actually a very smart idea. Develop some sort of loyalty scheme that rewards consistent purchases. Tesco and other supermarkets do this all the time. It encourages customers to keep on buying your stuff, and they also receive benefits from this – like further discounts in the future
Don’t forget about a customer after they have made a purchase. Be sure to follow up and communicate your marketing material to them, so they are persuaded to return for more.
How Can My Business Benefit From CVO Efforts?
The purpose of customer value optimisation is to improve the ROI of all your digital marketing activities.
Customer value optimisation is important for the growth of your business. It allows you to make your marketing budget go further, building loyalty and using customers who have already spent money with your business.
However, it can also help with the following:
- Improve your customer retention rate by developing an approach that focuses on the customers themselves
- Learn about the most valuable customers in your business – these are the ones most likely to spend more money and continue spending again and again
- Pinpoint the products or services that are selling better than the rest, letting you optimise inventory management or resources
The CVO meaning in business isn’t about short-term gains. Instead, it’s all about creating a better customer experience by providing them with a more tailored approach to marketing.
In turn, this will lead to customers that are more loyal to your business, and more likely to stick around for the long term.
Can Customer Value Optimisation Help With New Customer Acquisition?
While the process of customer value optimisation is intended to engage your existing customers, ironically, there can be additional benefits for new customers too.
The whole idea behind customer value optimisation is to create a better journey and experience for every customer that interacts with your business. This doesn’t just include existing customers; it includes potential ones. Therefore, people are more likely to become customers because the journey is more tuned to their individual needs.
Moreover, if your existing customers are becoming more loyal and having a better experience, they’re likely to tell others about this. Either through word of mouth or online reviews – both methods will help you generate more new customers.
Clearly, CVO is a critical aspect of your business and marketing strategy!
Distribute Digital – Get Advice From Our Customer Value Optimisation Experts
There’s a lot to digest when it comes to customer value optimisation. But ultimately, it’s all about helping your business succeed by maximising the value each customer generates for your business.
So let’s uncover what’s holding your business back through our brand value optimisation services.
To find out more about improving the value of your existing customers, contact us today for a free consultation.
