How to Increase Customer Lifetime Value: Which of the Three Levers to Pull First

Test the levers in the calculatorDownload the repeat-business plan (PDF)

The three levers, and what each is worth

Customer lifetime value is average sale × purchases per year × years a customer stays × gross margin (the formula guide walks through each input). Leave margin aside for a moment and three levers remain. To see what each is worth, take the free calculator's own example: a $120 average sale, 4 purchases a year, customers who stay 3 years and a 60% margin. Customer lifetime value: $864.

• One more purchase a year (5 instead of 4): $120 × 5 × 3 × 0.6 = $1,080, up 25%.
• One more year (4 instead of 3): $120 × 4 × 4 × 0.6 = $1,152, up 33%.
• 10% more per sale ($132 instead of $120): $132 × 4 × 3 × 0.6 = $950.40, up 10%.

Because the inputs multiply, each lever raises the result in proportion to its own change. One extra visit on four is a 25% change; one extra year on three is 33%; a price or upsell rise of 10% is, well, 10%. Price is the obvious lever to reach for, and in this example it is the smallest of the three.

Keeping customers longer also has the backing of the most-quoted research on the subject. In a 2014 Harvard Business Review piece, Amy Gallo summarises Frederick Reichheld's finding that increasing customer retention by 5% increases profits by 25% to 95%, and notes estimates that winning a new customer costs five to 25 times more than keeping one, depending on the study and the industry.

Lever 1: customers buy more often

This is usually the cheapest number to move in a service business, because the customer already wants the service; they just do not get round to booking it. Purchases per year slips when the next visit depends on the customer remembering.

1. Remind them when the next visit is due

Work out the natural interval for each service (a groom every six weeks, a gutter clean every autumn, a check-up every six months) and send a short note when it comes round, with a link to book. The reminder is not marketing; it is the service schedule they would have kept if they had written it down.

2. Make rebooking one step

Offer the next appointment before the customer leaves, or put a booking link in every invoice and receipt. The fewer steps between "I should book that" and a booked slot, the more often it happens.

3. Turn regular work into a schedule

For work that repeats on a fixed rhythm, such as cleaning, maintenance or bookkeeping, a recurring arrangement with a recurring invoice removes the decision entirely.

Lever 2: customers stay longer

Years-they-stay is the biggest lever in the example above and the slowest to move, because you only see the result over years. Customers rarely leave a service business after one bad moment; they drift when they feel forgotten or when a competitor answers faster.

4. Follow up after every job

A short message a few days after the work: was everything right? It catches problems while they can still be fixed, and it reminds the customer who did the work.

5. Reply to enquiries the same day

Existing customers who ask a question and wait three days learn that someone else might be quicker.

6. Call the ones who have gone quiet

When a regular customer has gone twice their usual gap without booking, a personal call or note often brings them back, and when it does not, you learn why. Our guide to measuring churn explains how to spot them from your sales history, and asking customers how likely they are to recommend you, covered in our guide to reading an NPS score, gives early warning of who might leave.

Lever 3: customers spend more each time

7. Put optional extras on every quote

Listing an add-on (a deeper clean, an extended warranty, a second treatment) as an optional line on each quote lets customers say yes without a sales conversation. Some will; none are pressured.

8. Offer a package

Three visits booked together, or a seasonal bundle, raises the average sale and often the visits per year at the same time.

Prices themselves are the last lever, not the first. A price rise can lift the average sale, but if it costs you customers it shortens the years-they-stay figure, and that lever is worth more.

Whichever lever you choose, the habit has to happen every time, not when you remember. Fynl's paid plans keep each customer's history, quotes, invoices and emails on one record, repeat invoices on a schedule and send review requests, so the reminders and follow-ups stop depending on memory. Then measure again: rerun the free CLV calculator with six months of real records and see which number moved.

A sensible order for most service businesses: start with the reminder and rebooking habits, because they act within weeks and cost almost nothing; add the follow-up and the quiet-customer call next, because their payoff takes a year to show; and leave the quote extras and packages for when the first two are routine. Do one at a time so you can tell which one worked.

The CLV calculator sits with the NPS, missed-call and no-show calculators on our free tools page.

Questions people also ask

Sources

• Harvard Business Review — The Value of Keeping the Right Customers (Amy Gallo, 2014)
• Wikipedia — Customer lifetime value