Future of CX

5 powerful ways to increase your customer lifetime value

Jeremy DSouza
last edited on
June 28, 2023
9-10 mins

Table of contents

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increase customer lifetime value

Trying to acquire new customers is 5x more expensive than retaining existing customers. That’s one of the reasons why increasing your Customer Lifetime Value is an effective way to increase your revenue and profitability.

In spite of this, 44% of companies still care more about customer acquisition than customer retention, taking their focus away from increasing customer lifetime value.

But you’re one of the smart ones. You’re here to understand Customer Lifetime Value (CLTV) and see how to increase it.

Let’s get started.

What is your Customer Lifetime Value?

Your customer lifetime value is the amount of revenue that a customer will bring your company over the entire amount of time that they do business with you.

How do you calculate your Customer Lifetime Value?

There are quite a few formulae that could help you calculate your CLTV. But, let’s not get into the complicated, mind-boggling ones.

Here’s the easiest way to calculate your customer lifetime value:

This customer lifetime value formula will need you to figure out 3 things:


Average purchase value

Divide your company’s total revenue for a year by the total number of purchases made by your customers during that year.


Average purchase frequency

Divide the total number of purchases made by all your customers in that year by the number of unique customers you had that year.


Average customer lifespan

Calculate the average number of years that a customer would continue making purchases from your business.

Now that you have this data, all you need to do is multiply these three figures.

Customer Lifetime Value formula
CLTV formula

Why is Customer Lifetime Value important?

Understanding your customer lifetime value can help you make very important business decisions.

If your Customer Lifetime Value is lower than your Customer Acquisition Cost, that means you’re in trouble.

You either need to lower your acquisition cost or increase your lifetime value.

That could mean automating your lead generation process, targeting a different type of customer, getting your customers to stick with you for a longer period of time, or a whole slew of other things.

How do you increase your Customer Lifetime Value?

Fortunately, there isn’t just one way for you to increase and improve your customer lifetime value.

We’re going to go into a few common methods to do that, along with 5 less obvious, but still effective methods. After that, we’ll touch upon a few quick CLTV fixes.


Let’s go!

The common methods

Urge customers to switch to annual billing

If customers have to make purchases from you on a repetitive basis, a monthly billing system is unpredictable.

They could switch over to your competition at any point and you’d be left hanging.

But, with an annual billing system, you’ve got them to commit to you for a year.

It substantially reduces the odds of them switching over at any point during the year. But it could also have a psychological effect on your customers.

Ever heard of the Benjamin Franklin effect?

It’s a cognitive bias that makes you like people more after you do them a favor.

Essentially, when you do someone a favor, your brain tries to justify that behavior. So, even if you didn’t like that person much earlier, your brain decides that you do like that person. This happens in order to avoid cognitive dissonance.

Getting someone to purchase an annual plan could have a similar effect. They’d value your offerings more because they invested in a long-term plan rather than a monthly one.

By offering a discount on annual plans or giving your customers a couple of extra months with their annual plan, you could motivate them to make the switch.


Upselling involves getting an existing customer to switch to a higher-value version of the product/service that they are currently using.

It’s a powerful way to increase your customer lifetime value.

Creating a variety of pricing tiers allows your customers to enter your ecosystem and experience your basic offerings. Now that they are already comfortable with your solutions, it’s time for you to show them how much more value they could get from the premium version.

Cross-selling involves offering your customers products or services that complement the ones that they’re already buying.

Existing customers have a 50% higher probability of buying new products that you offer them. Here are a few ways to make that happen.

  • Create bundle offersCreate bundles of products that complement each other. Offering a discount on them could also be very effective.
  • Offer free shipping at a minimum order valueThe word ‘free’ itself will make your customers’ eyes light up. Besides, they will also realize that they could use the money that they would otherwise spend on shipping in order to make more purchases.
  • Offering related products at checkoutBy offering related products at checkout, you could encourage customers to make impulsive purchases that they didn’t really think about earlier. Many e-commerce websites do this today. But this is one of the strategies that made Life Savers popular more than a hundred years ago.They got cigar stores and restaurants to keep them right next to the cash registers. Obviously, customers started buying these mints along with their cigars and meals.
Existing customers try new products and spend more money than new customers
Existing customers spend more than new ones

Stop underpricing

A lot of old economic models have said that raising your price would result in a drop in demand. But we have seen that this is not always the case.

That’s because we humans don’t behave rationally. We act emotionally and then try to logically justify our actions.

Studies have shown that increasing your prices by 5% could result in a 22% growth in profits.

But, a price hike could scare off your existing customers. What do you do about that?

One word: Grandfathering.

Essentially, just keep the pre-existing pricing plans for your current customers and apply the new plans for customers.

Create loyalty programs

Loyalty programs can be very powerful. They increase all three factors: the average purchase value, the average purchase frequency and the average customer lifespan.

An Accenture study has shown that members of loyalty programs generate 12-18% more total revenue than customers who aren’t members of those programs.

Because of Loss Aversion, people don’t want to lose out on the loyalty points that they’ve gathered. So, they keep making purchases.

But if you want to make your loyalty programs even more effective, you need to make it easier for loyal customers to earn and access their points.

Take a cue from Mall of the Emirates.

They used an AI-powered Engati chatbot to make it easier for customers to earn rewards points.

Mall of the Emirates blurred the lines between physical and digital experiences. After making a purchase, customers could send the bot a picture of their receipts.

The bot would then make use of OCR technology to parse through the receipt and allocate reward points to the customers. This made things much easier for both - the customers and the mall.

5 effective methods of increasing your customer lifetime value

1. Create an emotional connection

Creating a transactional relationship with your customers doesn’t do you much good.

It makes you replaceable.

Anyone with a slightly better product or a marginally lower price could swoop in and steal your customers away.

Scott Magids, Alan Zorfas, and Daniel Leemon published a study in the Harvard Business Review. They studied customers that were all highly satisfied with a business but had varying levels of emotional connections with it.

What did they find?

Fully connected customers were 52% more valuable than customers who were highly satisfied, but not fully connected.

Customers that were not emotionally connected were actually 18% less valuable than the ones that were highly satisfied but not fully connected.

You need to focus on cultivating emotional connections with your customers. Do not let your relationships simply be transactional.

2. Understand the Voice of the Customer

Paying attention to the voice of the customer is crucial. It helps you recognize their expectations, understand their struggles and complaints, and focus on improving the things that matter the most to them.

It helps you understand your customers holistically and give them what they truly need and want.

That means that understanding and acting on the voice of the customer increases your revenue and your customer loyalty.

Customer retention rates with and without Voice of CustomerCustomer retention with and without Voice of the Customer

3. Improve your customer support

You need to step-up your customer service game if you want to increase your CLTV.

Replying to emails after a day isn’t going to cut it. Forcing customers to wait on hold for 7 minutes won’t work.

You’ve got to respond to customers instantly, no matter the time, the day or the language. You need to engage them over whichever channels they prefer, not just the ones you are comfortable with.

Studies have shown that 56% of customers would switch vendors if your competitors offered more ways to interact with them.

That’s where Engati comes in.

Guess which channel customers prefer to contact customer service over.

Is it the humble phone call? The ignorable email?


It’s chat.

Multichannel customer satisfaction ratingsCustomer satisfaction across support channels

Engati empowers you to engage your customers with chatbots and live chat in one integrated solution.

The speed of a bot combines with the warmth of live chat to give your customers the best customer experience ever and keep them coming back to your business.

With Engati, you can automate customer conversations in 50+ languages, over 14 chat channels, including but not limited to Messenger, WhatsApp, and Telegram.

Multichannel customer supportAutomate conversations across multiple channels

These bots can handle around 80% of your customer queries. Sure, there always are a few that warrant personal attention. Those can be seamlessly routed along to a live agent.

And here’s the best thing - your customers won’t need to go through 3 different agents before they reach the right one.

Our advanced, context-based routing system ensures that the conversation reaches the right agent the very first time.

4. Hyper-personalize

This is what gives Netflix and Amazon their cult-like followings.

They don’t offer content and products for people like you.

They offer content and products for you.


They’re all about hyper-personalization.

It’s not about simply creating personas and offering content that those personas tend to be interested in.

They literally track your behavior on their platforms and provide you with offerings that align with your behavior.

It’s not, “This is something that a 35-year-old father of two staying in Atlanta would like”.

It’s more like, “Based on his behavioral patterns, this is what Joshua would be interested in”.

Now, you may not be able to crunch as much data as Amazon and Netflix can. But you can still tailor your offerings towards an individual customer’s needs.

Make them feel like people, not numbers.

5. Identify your future Most Valuable Customers

You always want to focus on treating your Most Valuable Customers (MVCs) right. But wouldn’t it be better if you could identify them even before they become your most valuable customers?

These are your Most Growable Customers.

How do you identify them?

One way is to create a persona based on your current Most Valuable Customers and then check which of your newer customers match this persona the best.

You could also use predictive analytics to get a better understanding of who these customers could be.

Now once you’ve identified your Most Growable Customers, it’s time to for you to take special care of them.

Less-effort methods for increasing CLTV

Give them a little gift

This is more practical if you have a smaller customer base or if you have identified your most valuable and most growable customers.

While its still possible on a large scale, it’s much easier for you to personalize these gifts for a few customers.

What can you do here?

Send a standard or persona-based surprise gift to most of your customers. It could even be a free upgrade.

But, hyper-personalize the gift for your most valuable customers.

If you have a great relationship with them, it makes things even easier.

All it takes is for you to dig into their social media a bit or even take notes from your conversations with them.

Figure out what they’re interested in and send them a gift that aligns with it.

Share value-driven content

Create and share content that gives them value.

Don’t just send them promotional messages. Share content that educates them. Give them content that helps them achieve their goals.

Make it less about you and more about them.

It’s all about showing them that you care about them and you’re looking to help them grow. It’s about getting them to trust you more. It’s about making them believe that you’re not just another vendor, you’re also a trusted resource.

So, whenever they face any issue related to that domain, they’ll come to you.

That being said, it’s also important to show them what kind of value you’ve brought to them.

Send them periodical messages with stats about the value you’ve brought to them. Tell them about the amount of time and/or money that you’ve saved them. Show them what they’ve saved or gained by using your product/service during that period of time.

Improve your return policy

A great return policy is what got Zappos its claim to fame.

It eliminates friction involved in purchases and helps customers trust you more. And that means that they’ll keep coming back because they know that they can return their purchases if they have any issues with them.

The great thing is that thanks to the Endowment Effect, customers will assign more value to their purchases and will be less likely to return them. Essentially, you’ll find people making more purchases and returning only a few of them.

Repost content in which customers talk about you

If a customer says something positive about you in a social media post, push it on your social handles.

This does two things for you:

  • You get social proof, which results in more of your followers trusting you.
  • The customers whose posts you share realize that you care about them. Now they’re going to stick by you and talk about you even more.

Improve your Customer Lifetime Value with Engati

Engage your customers and answer all their queries in real-time with Engati.

Experience a powerful combination of chatbots and live chat that gives you both - speed and personalization.

Jeremy DSouza

Jeremy is a marketer at Engati with an interest in marketing psychology and consumer neuroscience. Over the last year he has interviewed many of the world's brightest CX, AI, Marketing, and Tech thought leaders for Engati CX.

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