Customers For Life?
Carl Sewell gave us his book “Customers for Life” in 1990, starting an entire movement for companies to secure customers for LIFE. But let’s think about that term “life”. For Sewell, who runs auto dealerships, “life” may mean something entirely different than in today’s B2B SaaS world.
For auto dealerships, gaining a customer for life means their actual physical life - and hopefully the lives of their kids too!
Does “Life” make sense for you?
The premise of providing exemplary customer service after the sale to ensure return business provides a solid foundation for all companies, regardless of industry. But how does the notion “for life” hold up in the competitive world of B2B SaaS we live in today? If you’re a company selling to another company, the “life”of your customer could be 100 years. Is this realistic? Here are a few factors that point to ‘no’
Your company’s evolution in your industry
Your customers’ evolution in their industry
The chance that your company will evolve and innovate along the same flightpath and timeline as your original customer is small.
The chance that your customers will evolve and innovate along the same flightpath and timeline as each other is small.
The chance that all of this will happen along the same flightpath and timeline as market evolution and changes in the competitive landscape are microscopic (If this happens, you should play Lotto and leave all this behind!)
Your new “Life”
Given the diversity across companies, industries, and target customers, there are no general metrics on the average SaaS customer lifespan. And let’s be honest, that metric isn’t helpful for you anyway. What you need to know is:
How long do I need to keep a customer in order for my business to be profitable?
Two specific measures will get you started on the right track for this.
1. Customer Acquisition Cost (CAC)
We’ve all heard the phrase ‘it costs money to make money’, and SaaS is no exception. There’s a very real cost associated with every new customer you secure, and many SaaS companies operate at a net loss per customer in early post-sale.
2. Customer Lifetime Value (CLV)
This is the total amount of money a customer gives you over their lifespan with you.
So how long do you need to keep a customer?
The answer is: until your CLV exceeds your CAC. This is where you start making money.
→If you spend $100 to acquire a customer, who pays you $10 a month, they need to renew into their 11th month for you to make any money.
For more information on calculating your CAC and CLV, and how to influence these values, contact me!
Like this blog post? Feel free to share it using the icons below.