The banks of 2022 look very different from how they did at the turn of the century. At the same time, the customer of 2022, in their values, expectations, and needs, is also very different from twenty years ago. It is vital to increase customer lifetime value in banking.

From generational differences to differences in salary and role, from employed to self-employed or unemployed, banks need to understand their customer is more critical now than at any other time in history.

All companies believe in strong customer relations, but the best of them know that not all customers are equally profitable. The challenge, therefore, is to identify customers based on their levels of profitability so that banks can select different target groups for specific products.

The CLTV model segregates customers based on their future profitability and helps banking institutions create a database of high-value customers who will generate the greatest profit in the long run.

What is Customer Lifetime Value?

Customer lifetime value (CLV) is a calculation used by businesses to project the amount of revenue their company can expect to generate from a customer for the entire future relationship with that customer (e.g., x number of years).

CLV is utilized across many industries, but the inputs used to calculate its variables can vary from sector to sector.

It is indicative of the profit margin your bank can expect to earn from an average customer over the course of the business relationship. It also helps banks to prioritize their efforts across customer groups and decide the quantum of resources to spend on each. It accounts for various expenses, including the cost incurred for sales and marketing, operational expenses, customer acquisition costs, and the amount invested.

Why is it important to calculate and track CLV?

Customer Acquisition: When you know what you will earn from a typical customer, you can increase or decrease spending to ensure you maximize profitability and continue to attract the right types of customers.

Improve Customer Retention: One of the biggest factors in addressing CLV is improving customer retention and avoiding customer attrition. Tracking these details with accurate segmentation can help you identify your best customers and determine what’s working well.

Forecasting: CLV forecasts help you make forward-looking decisions. Without a forecast, you could unknowingly overspend and waste money or underspend and put yourself in a bind where you struggle to keep up with demand.

How to calculate Customer Lifetime Value in banking?

Customer lifetime value is simply the product of customer value and average customer lifespan.

Customer lifetime value = Average value of purchase x Number of purchases x Average lifespan of a customer

There’s another way to calculate Customer Lifetime Value in banking, in terms of revenue:

CLV = Customer revenue – (Cost of acquisition + Cost of serving a customer)

How can banks improve and boost their CLV?

There are many different ways banks can adopt to boost their CLV.

#1 Optimize the Onboarding Process

Providing a seamless onboarding process should be one of your top priorities in your effort to ensure sustainable business growth.

It’s here that your customer really engages with your product and where you can make the greatest positive impact.

You should make the onboarding as easy and fast as possible. This can be done by simplifying the process with walkthrough guides, interactive how-to videos, wrapped tutorials, and other content that might help customers in fulfilling their goals.

You can even personalize the onboarding sequence by tailoring it to the buyer persona and focusing on communicating the value of your offering right from the start.

#2 Offer Your Clients a Personalized Experience

Personalization is paramount nowadays if you want your customers to be happy and stick to your bank in the long run.

Personalization can help you deliver your messages through the right channel at the right time. These things don’t just make or break a deal, they also determine whether or not a client becomes a repeat customer.

It can help you deliver a better customer experience. You can use personalization to craft highly personalized push notifications, in-app messages, etc., for each customer segment you have.

It helps you deliver better and more meaningful customer support, which is vital if you want to increase customer value over time. It also makes it easier for clients to feel like they have an actual relationship with your bank instead of just being a source of profit.

#3 Build strong relationships with your customers

Making a customer loyal to your brand goes beyond just fulfilling a need. It's important to nurture a healthy bond throughout the customer journey and during all your interactions with a client.

Get to know your users and tap into their feelings and expectations. Surveying your customers would provide you with a handful of insights helping you to better deliver on your promises.

Paying proper attention to building relationships with the top segments and keeping a pulse on customer satisfaction will also allow you to take immediate action, which is critical to the ongoing success of your business.

A Short Guide to Customer Experience Optimization

#4 Provide High-End Customer Service with Omnichannel support

Offering top-notch customer service is a necessary investment to help your business grow and increase retention. Most people these days, own more than one device. Hence, it’s important for banks to be active on as many channels as possible today.

Look into which channels your clients use the most. Once you know, make sure the support team is properly trained in using all those channels.

Better customer service equals a better customer experience. In turn, that will make your existing customers more likely to become loyal, long-term clients.

#5 Focus on upselling and cross-selling

It's often easier to reengage or upsell an existing customer than bring in a new one. You can make the customers choose an expense product option or multiple products at once with the help of upselling and cross-selling strategies.

Upselling and cross-selling are two simple, effective ways to increase the amount of money your customers spend on your business.

#6 Run Loyalty Programs with exciting rewards

With loyalty programs, you can keep customers engaged with your bank and reward them for being valued customers. Ensuring customer retention and, as a result, a higher customer lifetime value can also be accomplished with the help of loyalty programs by offering discounts or rewards, by means of loyalty cards, and by setting up loyalty apps or point schemes. Incentivizing customers will increase their product usage frequency and average lifespan, ultimately improving CLV.

By making your customers feel special, you will be able to cultivate a sustainable customer relationship.

#7 Listen to Your Customers: Collect Actionable Feedback

Happy customers are loyal customers. Understanding your customers lets you prioritize the aspects of your business that fuel customer satisfaction and revenue growth.

You should collect and store all the feedback you receive in one place. Send out customer satisfaction surveys – NPS and CSAT.

NPS makes it easy to assess customer happiness and allows you to send follow-up questions to find out what exactly clients love or hate about your business and what improvements they’d like to see.

A high NPS score helps you increase your CLV since happy customers are far more likely to stay with your business than unhappy ones. Focusing on increasing your NPS is a great way to keep your churn rate low while expanding your customer base.

Using an NPS tool is an excellent means to save time and get a clear view of your customers since it integrates with various services you already use. It will take some pressure off your customer success and support teams, allowing them to better focus on improving the customer experience.

#8 Analyze customer data, and detect pain points to provide solutions

Analyze your customers’ feedback, and identify the most frequently recurring issues that are being reported.

NPS surveys simplify this task, allowing you to collect actionable feedback and detect common pain points for both Detractors, customers who are not happy with your brand, and Passives, customers who like your brand but not enough to become a Promoter.

Final Thoughts

Customer lifetime value is too important for any banking institution to ignore. If you value customers, your revenue will grow. Understanding customer lifetime value, and acting upon this knowledge, will help banks gain a competitive advantage. Overall, a diligent CLV strategy enables banks to improve growth strategies not only to increase customer retention but also to boost revenue.

The Upshot.ai Advantage

Upshot.ai offers advanced systems that can track all the data needed for multi-channel businesses to calculate CLV and understand how it changes over time. These systems are all part of a unified platform that presents a central source of information for the entire organization without the need for third-party integrations. That makes it much easier to find the KPIs that help you understand the performance of your business.

Book a demo of the most comprehensive user engagement and gamification platform to achieve your digital product goals. Join our communities for more insights, guides, and best practices that keep you updated with proven strategies and tips to supercharge your campaigns.

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