How to increase your customer LTV with embedded services?

Having a continuously growing customer base is a priority for most businesses. It makes sense to invest in it for effective growth, right?

Not always.

In the pursuit of growth, we often hear about customer acquisition costs and conversion rates. However, customer acquisition costs are estimated to be 5 to 25 times higher than customer retention costs, depending on the industry.

So, where should one focus efforts to maximize growth? This is where the concept of customer lifetime value (LTV) comes into play. By increasing the total value a customer will bring, it becomes possible to make more informed decisions in marketing, sales, support, and other areas. This optimization leads to development and growth.

In building such a strategy, it is possible to implement third-party services into one’s offering to quickly multiply the value of existing customers and monetize the current customer base.

But first ⬇️

How to understand customer lifetime value?

Customer Lifetime Value (CLTV), or simply LTV, is an important key performance indicator (KPI) to consider when defining your business strategy. In simple terms, it refers to the total amount you can expect to earn from a customer throughout their relationship with your company.

To calculate CLTV, you need to take into account the revenue generated by the customer, the expenses associated with customer relationship management and support, and the forecasts of future revenue (upsells, cross-sells, downsells, etc.). This concept becomes interesting for the growth of any business because by understanding the CLTV of your customers, you can take measures to maximize this value and optimize long-term profitability. This allows you to assess the overall financial impact of a prospect even before they become a customer.

To understand the importance of CLTV, it is essential to consider the following aspects:

1. Customer profitability over a specific period: Calculated based on the average revenue generated by the customer throughout their commercial lifespan, the acquisition costs, and the costs of customer service and retention.
2. Forecasting and planning: Estimating potential future revenues generated by existing customers to make budgeting, investment, and growth decisions.
3. Strategic decision-making: Directing investments, efforts, initiatives, and resource allocation to the right areas.
4. Evaluation of customer satisfaction and loyalty: Assessing the effectiveness of customer retention strategies and relationship management.

As CLTV lies at the heart of a company’s strategy, it serves as the best indicator for long-term planning. By considering CLTV, you can focus not only on a single interaction but also on the entire customer journey to determine their true value.

In summary, tracking and measuring customer lifetime value allows you to adjust your strategy by optimizing your marketing and acquisition costs, customer retention and satisfaction, and your product.

It’s all about finding the right balance and profitability.

Factors Influencing CLTV: Customer Lifetime Value depends on various factors, some of which may be specific to your business and business model. While there is no magic formula for determining CLTV, understanding the factors that influence it is important for accurate calculation. Here are some key factors:

1. Customer satisfaction and experience: Positive customer experience and satisfaction are crucial for enhancing the duration of the customer relationship. Building a smooth and pleasant customer experience throughout their journey increases the likelihood of customer loyalty, repeat purchases, and overall value growth.
2. Communication and engagement: Effective communication, personalized interactions, promotional offers, and reminders significantly impact the lifetime value of customers. Employing the right strategies and tactics in these areas can influence their longevity and value.
3. Frequency and amount of purchases: The frequency and amount of purchases are essential factors in evaluating the lifetime value of a customer. Customers who make frequent and regular purchases generate higher revenues for the company over a given period, directly impacting CLTV. Their consistent and recurring contribution ensures financial stability.
4. Acquisition cost and retention rate: Balancing resources between customer acquisition and retention is crucial, and the cost level plays a significant role. Reducing churn and retaining customers for longer periods increases their lifetime value. Loyal customers who stay with the company generate higher cumulative revenues over time.
5. Costs associated with customer service: Costs related to customer support, refunds, returns, complaints, and similar services should be considered when evaluating the value of your customers. These costs directly impact customer relationship profitability, influence satisfaction levels, and allow for optimization of internal processes.
6. Potential value of cross-selling and upselling: Some customers may be more inclined to purchase complementary products or upgrade to higher-tier offerings. The ability to conduct cross-selling and upselling can strongly influence the lifetime value of customers. Additional sales enable you to avoid spending new marketing budgets on acquiring new customers.
7. Benefits of Increasing CLTV: Increasing customer lifetime value offers several advantages, including increased profitability, sustainable growth, additional sales opportunities, more effective use of marketing resources, and strengthened customer relationships. Here are some specific benefits:
8. Improved profitability: Increasing CLTV generates more revenue from a single customer, making it easier to recover the initial acquisition costs. It enhances the overall profitability of your business.
9. Sustainable growth: By reducing dependency on perpetual customer acquisition, higher CLTV stabilizes revenue and fosters steady business growth.
10. Positive reviews and recommendations: Higher CLTV leads to positive customer reviews and recommendations, attracting new customers without additional efforts. Loyal customers are more receptive to upselling and cross-selling, allowing you to focus on retaining existing customers and maximizing their long-term value.
11. Efficient resource allocation: Precise knowledge of CLTV enables more effective allocation of resources such as marketing, sales, product, support, and operations. Identifying the most profitable customer segments helps establish a sustainable competitive advantage and facilitates long-term strategic initiatives.

Understanding and maximizing customer lifetime value is a key strategy for long-term business success, allowing you to make informed decisions and prioritize initiatives that drive growth and profitability.

Embedded services: A strategy to increase LTV.

Now that the concept of Customer Lifetime Value is clear, let’s see how embedded services can be the right strategy to increase the lifetime value of your customers.

But first, what is an embedded service?

An embedded service is a feature integrated directly into an existing product or solution, providing additional functionality and a more complete value proposition.

These third-party services are seamlessly integrated to enhance the offering by providing additional features, accessing advanced resources and technologies, simplifying management by outsourcing certain responsibilities, and establishing strategic partnerships. This approach strengthens the company’s value proposition, improves the user experience, and enhances competitiveness in the market.

Whether it’s a logistics tool, loyalty service, support, financial, or insurance service, their integration can quickly and easily enhance customer value by offering additional features, streamlining processes, increasing customer engagement, and overall satisfaction. However, it is important to keep in mind that the choice of embedded services will heavily depend on your needs and target audience.

What embedded services can bring you:

Embedded services play a key role in strengthening customer relationships. By integrating third-party services into your company’s ecosystem, you offer a more comprehensive experience to your customers.

Why would they go elsewhere if everything is available with you? 🤷

For example, if you support entrepreneurs in starting and growing their businesses, by integrating third-party banking, legal, or insurance services, your customers could benefit from essential services without having to leave your platform. This creates a closer and more enduring relationship with them, encouraging loyalty to your company. For them, daily life is simplified, and for you, you increase your retention rate by meeting their needs through a comprehensive offering.

It’s like creating a positive dependency on your company. For example, if you’re a freelance matchmaking platform and you offer integrated transaction insurance, your clients will feel secure knowing they are protected in case of issues. This peace of mind strengthens their trust in your company and encourages them to remain loyal.

Integrating third-party services can also simplify your customer journey by eliminating the need for them to use separate external services, making their experience smoother. For example, adding financing solutions to your product or offering.

And perhaps the most important part, embedded services provide cross-selling and upselling opportunities. When you integrate complementary services with your core offering, you can propose additional products or services to your existing customers, thereby increasing the average transaction value and generating more revenue from each customer.

With minimal effort required, embedded services play a crucial role in strengthening customer loyalty and increasing Customer Lifetime Value (CLTV). They provide an enhanced user experience through advanced additional features that complement your product/service. This ongoing added value creates a positive relationship between your brand and your customers.

To help you better understand how an embedded service works, here’s an explanatory diagram of Olino’s B2B embedded insurance service.

The different embedded services to maximize LTV

The integration of embedded services plays a key role in optimizing and multiplying your CLTV. Juniper Research conducted a study with 450 senior-level executives in the United States who have used embedded services.

Among the embedded services, we find banking, credit and loans, employee services, insurance, payment solutions, and promotion and loyalty services. The choice is broad enough for you to find exactly what you need.

Whether it’s increasing average basket size and revenue, improving retention rates, or enhancing acquisition ease, third-party embedded services are highly appealing. And for a good reason, integrating a third-party service into your offering requires very little effort. You have almost nothing to lose and everything to gain. The time spent on developing and improving your value proposition is significantly reduced.

If we were to summarize the benefits mentioned earlier from the study conducted by Juniper Research, integrating embedded services will be beneficial for your customer lifetime value.

And to address the question that led us here, having a constantly growing customer base is essential. But when it comes to the question of whether to prioritize acquisition or retention, the answer is both. The prioritization of either will heavily depend on your business, development level, and roadmap.

However, embedded services appear as the ideal combo to help you progress on multiple fronts. Here’s what you need to remember about embedded services:

• Increased revenue through cross-selling and upselling
• Speed and ease of integration
• Diversification of the value proposition
• Gaining a competitive advantage
• Reduction of acquisition costs
• Improved customer retention

All these criteria directly contribute to calculating your CLTV. You spend less to attract them, and you retain them for longer thanks to additional services.

There is no miracle solution. However, conducting a thorough study of your customers and their additional needs will help you determine which additional services would be most interesting to integrate into your offering. Finally, let’s see what the best practices are for successful integration of embedded services.

The best practices for successful integration of embedded services.

At Olino, we aim to simplify the world of professional insurance with embedded insurance. To ensure the smoothest integration with our partners, we have established a few steps that could be useful for you in the search and implementation of a B2B or B2C third-party service (insurance-related or not).

1. Understand your customers’ needs: It is essential to understand your customers before integrating a third-party service into your offering. Just because your competitor did it doesn’t mean it’s necessarily a good idea. Even though integrating such a service is relatively quick and requires very little management, if any, you need to ensure its relevance and added value.
2. Select the right partner: This is undoubtedly one of the most crucial steps because by integrating a third-party service, you will rely on the expertise and skills of another entity. Whether it’s regarding customer service, technical integration, values, reputation, or range of products/services, you need to ensure that the collaboration will strengthen your value proposition and maximize customer satisfaction.
3. Service integration: The goal of embedded services is to enable effortless and completely seamless integration. Your users’ experience should not lose intuitiveness and simplicity. Ensure that the proposed integration fits within your workflow, without adding extra friction and in line with your brand identity.
4. Communication about the novelty: Your processes and workflows may evolve as a result of this implementation. Ensure that your customers are informed about these updates and can benefit from them in the best possible way. Your customer journey, including all marketing and transactional communications, should remain smooth.
5. Tracking and measuring results: It is essential to ensure that the embedded service contributes to meeting your expectations and those of your customers by providing real added value. By monitoring performance, gathering customer feedback, and measuring results with the partner, you can adjust your approach, improve the customer experience, and maximize the benefits of embedded services in terms of CLTV and customer satisfaction.

To summarize all the points discussed earlier, embedded services are an almost instant and painless solution to monetize your customer base and increase your CLTV. Whether it’s about acquisition or retention, embedded services primarily allow you to monetize your existing customer base almost instantly and effortlessly.

There is no magic remedy to improve and multiply your customer CLTV, but embedded services seem to be the closest solution for activating new drivers.