Do you know that 96% of customers refer to customer service as the most important factor when it comes to brand loyalty? This statistic, along with many others, points to customer service as a fundamental success factor for any business.
And yet, despite its importance, customer value is often siloed off from the rest of the company, seen as a necessary evil rather than a source of competitive advantage.
This is a mistake.
It’s not just about providing a quick resolution to a customer’s issue. Excellent customer service is creating long-term relationships with your customers so they keep coming back to you.
And one of the best ways is by practicing customer value optimization (CVO). It is a process that helps businesses increase their revenue by understanding and maximizing the lifetime value of their customers.
With the right approach, customer value optimization can be a powerful tool for driving growth and building loyalty. In fact, businesses that excel at customer service are 85% more profitable than their peers. (Forrester Study)
This ultimate guide will show you everything you need to know about customer value optimization. We’ll start by defining the objectives and walk you through the steps.
By the end of this guide, you’ll have all the knowledge you need to start driving more value for your business.
The Objective of CVO
The objective of CVO is to increase customer lifetime value (LTV) by optimizing customer acquisition, engagement, and retention rates.
It works by understanding the customer journey, from awareness to purchase to post-purchase, and then mapping out the key touchpoints influencing a customer’s decision-making process.
Once the customer journey is understood, CVO uses data and analytics to identify which optimization opportunities will have the biggest impact on LTV. These optimization opportunities are then tested and implemented through marketing campaigns, website design changes, or product/pricing changes.
How To Calculate Your Customer Value?
Customer value is the perceived worth of a product or service. It’s what keeps customers coming back. The ” X-factor ” makes your business unique and different from the competition.
There are several ways to calculate your customer value, but ultimately it boils down to this equation:
Customer Value = Benefits / Costs
To put it simply, it is the sum total of all the benefits they get from using your product or service, divided by the costs (both monetary and opportunity costs).
- Benefits can be anything from feeling happy and satisfied with the purchase to getting their money’s worth out of the product or service.
- Costs, on the other hand, can be things like the price of the product or average transaction value, the time it takes to use it, and even any negative feelings associated with using it.
It’s important to keep in mind that customer value is highly subjective. What one person may see as a valuable benefit, another person may not.
That’s why it’s so important to know your audience and what they’re looking for in a product or service before you can start calculating.
What Are The Steps?
The steps to customer value optimization (CVO) are simple and easy to follow:
1) Determine Product/Market Fit
The first step is ensuring you have a product that people want or need. This may seem obvious, but it’s amazing how many businesses get this wrong.
Take the time to validate your idea with potential customers before investing too much time or money into it.
It would be best if you made sure that there is a demand for your product in the market.
Do some research and find out if people are interested in what you have to offer. If not, you may need to tweak your product or target a different market.
Some factors that you need to consider include:
- Whether people understand what your product does
- Whether people are willing to pay for your product
- How much competition is already in the market
Also, remember that product/market fit can change over time. Just because you had a great idea five years ago doesn’t mean it’s still relevant today.
Once you’ve determined that there is indeed a market for your product, you need to create a value proposition. This statement clearly articulates the benefits of your product and how it solves your customer’s problem.
Think about what makes your product unique and why someone would want to buy it. What pain points does it address?
How does it make their life easier?
Your value proposition should be clear, concise, and easy to understand.
2) Choose a Traffic Source
After you have worked out your product/market fit, it is time to focus on customer acquisition. Without customers, there can be no business.
There are various ways to generate traffic, and it is important to choose the one that makes the most sense for your company.
You can use paid advertising, search engine optimization (SEO), social media marketing, or even word-of-mouth marketing.
The most important thing is to start and keep testing different methods until you find what works best for you.
Paid advertising is a great way to get immediate results. You can use platforms like Google AdWords or Facebook Ads to target potential customers with ads that are relevant to their interests.
The downside of paid advertising is that it can be expensive, and you will need to constantly monitor your campaigns to ensure that you are getting a positive return on investment (ROI).
Search Engine Optimization (SEO)
SEO is a long-term strategy that can take months or even years to see results. However, it is one of the most effective ways to generate organic traffic. Optimizing your website for search engines can increase your visibility and draw in more visitors over time.
The key to successful SEO is creating high-quality content relevant to your target audience.
Social Media Marketing
Social media marketing is another great way to connect with potential customers. Platforms like Facebook, Twitter, and Instagram allow you to build relationships with your target audience and share relevant content with them.
The best way to succeed with social media marketing is to be consistent and create interesting and engaging content.
One of the oldest and most effective forms of marketing is word-of-mouth. People who are happy with your product or service will tell their friends and family about it. This can help you attract new customers without spending money on advertising.
The best way to generate word-of-mouth marketing is to deliver an exceptional experience that leaves your customers feeling satisfied.
3) Offer a Lead Magnet
Usually, but not always, you need to offer a lead magnet. A lead magnet is an irresistible freebie that entices people to sign up for your email list. It could be a PDF report, an e-book, a coupon, or anything else that provides value.
The key is ensuring that your lead magnet is closely related to the product or service you’re selling. That way, you can attract people who are interested in what you have to say.
Once you have a lead magnet, you need to promote it. You can do this through paid advertising, social media, guest blogging, or any other traffic source you choose.
Getting people to your lead magnet is important so you can start building a relationship with them. From there, you can begin selling them products and services that they’ll want to buy.
4) Offer An Entry Point Offer (Tripwire)
An entry point offer, also known as a tripwire, is a low-priced product (but not low-value) or service that entices people to buy from you. It’s designed to get customers in the door and build relationships with them.
After making their first purchase, you can upsell them on your more expensive products or services.
5) Offer a Core Product
After determining product fit and choosing a traffic source, it’s time to focus on generating revenue. To do this, you’ll need to create a core product.
Your core product should be something that your target market needs or wants and that they are willing to pay for. It should also be something that you can profitably sell.
There are a few different ways to determine your core product. One way is to look at your competition and see their offerings. Another way is to survey your target market and ask them what they would be interested in purchasing.
Once you know what your core product should be, you need to create it. This can involve anything from developing a new product to simply packaging an existing product in a new way.
Once your core product is created, it’s time to start selling it. You can do this through various channels, such as online storefronts, brick-and-mortar stores, or even through direct sales.
Whatever channel you choose, make sure you’re promoting your core product in a way that will reach your target market. And always remember, you can always experiment with different channels and strategies to find what works best for you and your business.
6) Offer a Profit Maximizer
After generating revenue with your core product, it’s time to start thinking about profits. One way to do this is to offer a profit maximizer.
A profit maximizer is a product or service that you offer your customers with a high-profit margin. This can be anything from a digital product to a physical product. The key is finding something your target market is willing to pay for and that you can sell at a high margin.
The key is finding a channel that you’re comfortable with that reaches your target market. And always remember, you can always experiment with different channels and strategies to find what works best for your business.
7) Create the Return Path
The return path is the process you put in place to bring customers back to your business. This could include email marketing, customer loyalty programs, or referral incentives.
Creating a return path can increase customer lifetime value and boost your bottom line and business growth.
Following these simple steps, you can optimize the value that your customers get from your business. Doing so will increase your profits and build a loyal customer base.
The Customer Value Journey – The ideal sales funnel
To help you optimize customer value, we’ve put together a simple guide that you can follow.
Following this flow ensures that you’ll be able to increase revenue by bringing customer value optimization into the heart of your business.
Here are the seven steps of the customer value journey and what they mean:
The first step is to get your target market aware of your business and what you have to offer. You can do this through various marketing channels, such as SEO/Paid/Social Media
After you’ve gotten your target market’s attention, it’s time to engage with them. Show them that they came to the right place by providing valuable content that answers their questions.
Engagement is all about starting a conversation with your audience, and the best way to do that is by creating content that is interesting and relevant to them.
If you can get them talking, you’re well on your way to building a strong relationship with your target market.
You can do this a blog post, videos, quizzes, etc.
After you’ve engaged with your target market and built a relationship with them, it’s time to get them to subscribe to your email list or loyalty program.
This will help you keep them updated on your latest offerings and bring them back to your business again and again.
After you’ve built up a database of potential customers through your email list or loyalty program, it’s time to start converting them into paying customers. This process is known as lead generation, and there are a number of different strategies that you can use to achieve it.
One common approach is to offer a free trial of your product or service. This allows potential customers to experience the value that your offering before making a commitment.
Another popular technique is to offer a discount on your services. This can be an effective way to lure in price-sensitive customers who are on the fence about your product.
Whatever approach you decide to take, the goal at this stage is not to try to sell your most expensive product. Instead, focus on providing value and building trust with new converts.
Once you’ve established a relationship, you’ll be in a much better position to close a larger sale down the line.
Right after you converted your customer, you need to wow and excitement them. They need to have an “aha!” moment where they see the value in what you’re offering.
One way to create this moment is to offer an unexpected discount or free gift with purchase. This will show them that you’re generous and that you want them to be happy with their purchase.
Another way to create a wow moment is to let them have a small success with the product or service. This will show them that your product can deliver on its promises, and it will open their eyes to the possibilities of what else it can do.
Whatever you do, make sure it’s something that will make them take notice. A little bit of excitement can go a long way towards increasing the lifetime value of a customer.
If we’ve done the “excite” part right (stage #5), the initial conversion help our new buyer achieve a small win. They can now see the huge potential in front of them and naturally want more (without any high-pressure selling).
What’s more, they are also much more likely to take us up on future offers, which is essential for a long-term successful relationship. So, in short, it pays to excite our prospects and then give them an easy way to convert.
This is the basis of a strong sales funnel that will keep producing results for years to come.
As the cost of customer acquisition continues to rise, it’s more important than ever to maximize the lifetime value of each customer.
Not only does this help to offset the costs of acquisition, but it also queues up the next stage of the customer lifecycle: advocacy.
By delighting customers and delivering on your promises, you create advocates who are willing to spread the word about your business.
And as we all know, word-of-mouth is still the most powerful marketing tool available.
So if you want to keep your acquisition costs down and your customer base growing, focus on creating advocates out of your current customers. It’s the best way to keep your business moving forward.
If we’ve done everything perfectly, we’ve not only created advocates, but we have the opportunity to create a sales army.
When people are passionate about something, they’ll go out and tell their friends about it. They’ll rave about it on social media, write reviews and blog posts, and generally do everything they can to get the word out.
And that’s exactly what we want. Because when people are talking about our product or service, that’s when sales happen.
So if we can get our advocates to do some of the legwork for us, we’re that much closer to meeting our goals. You may even want to start an official revenue-sharing program.
Understanding the customer value journey is essential for any business that wants to create long-term customers and increase sales.
It is the process that customers go through when they become aware of a problem or need, consider solutions, make a purchase, and continue buying your products or services.
By understanding this journey (sales funnel), businesses can ensure that they are providing the right solutions at the right time and creating an overall positive experience that will keep customers coming back.
Additionally, by tracking metrics such as conversion rates and customer satisfaction levels at each stage of the journey, businesses can identify areas where they need to improve in order to further increase sales and create even more loyal customers.
Other Tips To Follow
Some more tips to follow if you want to optimize your customer’s value include:
- Use the Right Advertisements: You should ensure that your ads are relevant to your target audience and offer value. Otherwise, you’re just wasting your time and money.
- Offer Additional Value: In addition to the product or service you’re selling, consider offering additional value such as free shipping, a loyalty program, or referral discounts.
- Sound Like a Human: When communicating with customers, sound like a human being instead of a robot. This will make them feel more valued and appreciated.
- Share Product Reviews: Share reviews from happy customers on your website or social media pages. This will show potential customers that customer satisfaction is a priority for you.
- Offer Live Chat Assistance: Make it easy for customers to get in touch with you by offering live chat assistance. This way, they can get their questions answered quickly and efficiently.
By following these tips, you can ensure that you are providing your valuable customers with the best possible experience and value for their money. Implementing a customer value optimization strategy is essential to any business’s success.
1. What Are The Types Of Customer Value?
There are two types of customer value: tangible and intangible.
- Tangible value is the quantifiable benefits that a product or service delivers. This could be in the form of better performance, higher quality, greater convenience, or other measures that can be objectively compared.
- Intangible value is a product or service’s subjective, emotional benefits. These might include a sense of prestige, a feeling of satisfaction, or increased peace of mind. While harder to quantify, these benefits can be just as important to high-value customers as the tangible ones.
2. How Do We Maximize Customer Value?
To maximize customer value, businesses need to understand what their target and existing customers value most and then align their offerings accordingly.
This could involve investing in new technologies or processes, redesigning products or services, or changing how they are marketed and sold.
3. What Are Customer Value Strategies?
Businesses can use several different customer value strategies to increase the value they deliver to their customers. Some common approaches include:
- Offering more for the same price (e.g. increased features, longer warranties)
- Reducing the price of a product or service without compromising quality
- Enhancing the intangible benefits that a product or service delivers (e.g. increasing convenience, improving customer service)
- Creating unique products or services that offer distinct advantages over competitors’ offerings
Which of these strategies will work best will depend on your target market’s specific needs and preferences. Ultimately, the goal is to offer more value than your competitors while still maintaining a healthy profit margin.
In conclusion, a customer value optimization system is a powerful tool that can help you increase your conversion rate and grow your business.
By understanding the needs and wants of your target audience, you can create a strategy that will deliver the right message, to the right people, at the right time.
Customer value optimization can be a game-changer for your business when done correctly.
If you want to take your business to the next level, start implementing a customer value optimization strategy today.
I’m the founder of Grow Predictably, a company that helps businesses make an impact. We work with you to create a marketing strategy tailored for your needs and goals. We help businesses grow and make an impact by providing services that drive predictable, profitable growth.
Making an impact is what drives me. I founded my company on the belief that successful businesses should make an impact. And we’ve been helping businesses do just that for years now. It’s why we exist – to help businesses reach more people and change more lives for the better.