Customer Lifetime Value: Why It's So Important in ABM

June 9, 2022

In the following guide, we walk you through the basics of ABM and customer lifetime value — and why CLV is so critical for an effective account-based marketing strategy in the world of SaaS ABM.

If you’re familiar with account-based marketing (ABM), then you know ABM is all about investing in accounts with the highest conversion rates, largest deals, lowest churn rates, and highest upsell potential. With ABM, you can build and maintain long-term relationships with premium accounts and guide them from one funnel stage to the next. To do so, however, you'll need a good understanding of your customer lifetime value and your customer acquisition cost (CAC). In the following guide, we walk you through the basics of ABM and customer lifetime value — and why CLV is so critical for an effective account-based marketing strategy in the world of SaaS ABM.

Account-Based Marketing at a Glance

Account-based marketing, or ABM, aligns sales and marketing efforts, allowing them to focus on high-value accounts. ABM helps companies target the right accounts, engage with them at the right time, and nurture leads throughout the buying cycle. It's a more effective way to allocate resources than traditional lead generation tactics because it leverages data from multiple sources, including CRM systems and third-party data providers. Using this data, B2B account-based marketers are able to deliver advertising, direct mail, email, and content to targeted companies and individuals who are likely to be involved in buying decisions.

The popularity of ABM has accelerated since the pandemic, says MarTech, as events and in-person meetings went virtual. While B2B buyers are known to conduct a healthy amount of research online before talking to a salesperson, the trend toward all things virtual has these buyers going online en masse. This means that by the time your sales team actually connects with buyers — if they actually make contact — they’ve already learned all about what you have to offer. This makes account-based marketing even more critical so you can reach buyers at the right time and right place before they make up their minds whether to buy from you (or whether to speak with you in the first place).

What Is Customer Lifetime Value (CLV)?

A customer’s CLV represents the net profit you expect from that customer over their entire lifetime with your company. HubSpot explains there are many different ways to calculate this number, depending on which one makes the most sense for your business. Here are some of the most common formulas:

Average Purchase Value (APV)

Divide your company’s total revenue in a given period — a year, for example — by the number of purchases made in that period of time.

Average Purchase Frequency Rate

Divide the number of purchases by the number of unique customers who completed a purchase in a given period.

Customer Value

Multiply the average purchase value by the average purchase frequency rate.

Average Customer Lifespan

Calculate the average number of years a customer continues buying from your company to determine the average customer lifespan.

What Is Customer Acquisition Cost (CAC)?

Your CAC is the amount it takes to acquire a new customer. It includes all of the costs associated with bringing them on board, such as sales commissions, advertising, lead generation efforts, and more. The lower your CAC, the better — because it means you’re spending less money to acquire new customers.

And while traditionally, the thinking is that it costs more to acquire a new customer than to retain an existing one, you cannot rely on acquisition cost alone when considering the value of a customer. As Forbes points out, you can have an existing client who provides limited lifetime value, versus a new client who is potentially much more valuable in the long term.

 

With the latter, the value of this new client likely exceeds any costs associated with acquiring the client. And the longer a client stays on board with your SaaS company, the more likely they are to increase their purchases and move into higher-tier product offerings — increasing their profitability over time.

 

Source: CLV Calculator

 

Knowing CLV Enables Better ABM

Once you have a firm grasp of your CLV, you’ll enable better account-based marketing, allowing you to drill down into account segments — say, in tiers 1, 2, and 3 — and better allocate your campaign budget accordingly. With SaaS ABM, you can focus on building relationships with accounts and tailoring your marketing toward their ongoing needs so that when they need to make the decision to buy in the future — whether from you or from your competitors — they choose you.

The key is knowing what those companies need and how to provide it. For example, if you are selling accounting software, an accountant at a small business might want to know about new products or training options for their staff. They also might want access to industry experts who can answer questions about changes in legislation that could affect them (or their clients).

Benefits of SaaS ABM

ABM is a way for SaaS companies to target their ideal customers, find profitable new ones, and generate more revenue from their existing customers. Here are some of the biggest benefits of account-based marketing for SaaS companies:

 

●  Better targeting. Your current clients already understand who you are and what you do. Because they are already engaged with your brand, you can nurture them with marketing campaigns that speak to their pain points and explain how your SaaS offerings will help your current customer solve their problems — which is what actually matters for them. Contrast this with outbound marketing methods where you are speaking to the masses and are not necessarily connecting with your ideal customer.

●  Higher-quality leads. A good SaaS ABM strategy identifies your best prospects and targets them based on their needs and interests — not just any old lead that comes through your website or has visited your blog post on social media. By targeting B2B decision makers who are actively looking for solutions like yours, you ensure that each prospect is qualified.

●  Increased ROI. A well-executed ABM strategy will help you optimize your spend by focusing time, energy, and resources on the most valuable accounts. Overall, you drive down your CAC by acquiring leads that are a better fit with what you have to offer.

●  Improved customer satisfaction. Account-based marketing ensures that you are consistently tuning into every client’s needs throughout the buying journey. This reduces churn rate by boosting customer satisfaction levels.

5 Ways ABM Reduces CAC

In an ideal world, your SaaS customer acquisition costs would be low and you would only acquire customers who have the potential for high CLV. While not every customer can be a dream client, there are ways to use ABM to drive down CAC and improve your SaaS LTV for the majority of clients you bring on board. It’s a strategy that more and more marketers are using, according to Forrester: Some 93% of respondents in one survey said they considered ABM to be “very” or “extremely” important to the success of their organizations. It’s easy to see why, when you consider the following five benefits of ABM.

1. Better Use of Marketing Spend

Marketing spend is often driven by vanity metrics such as impressions or clicks, which don’t necessarily drive results or revenue growth. Account-based marketing helps businesses focus on key performance indicators (KPIs) such as revenue per account or customer lifetime value instead. By focusing on specific accounts rather than broad markets, ABM can help you drive down acquisition costs and improve your SaaS LTV, as opposed to traditional campaigns that rely on mass advertising channels where there is limited targeting ability.

2. Shorter Sales Cycles

Account-based marketing helps you generate more qualified leads by targeting specific companies with relevant content at each stage in their buyer journey. This helps lowering customer acquisition cost and shortening the sales timeline. By focusing on high-value accounts, you can increase your chances of winning new business, resulting in a lower CAC and faster growth.

3. Bigger Deals

Account-based marketing helps you earn bigger deals with existing clients because it allows you to focus on their most pressing needs. You'll also be able to better understand what makes them tick and how you can help them achieve their goals. With this knowledge under your belt, you'll be able to position yourself as an expert resource for your customers' business and offer more value as they grow with you.

4. Reduced Churn

It's not just about getting people to buy something from you; it's about building an ongoing relationship with them. The goal of account-based marketing is to help these customers achieve their goals and make sure they're successful using your product or service. When you meet clients where they are using ABM, you make your SaaS product “stickier” and reduce the chances they will cancel their service and go with a competitor when it comes time to renew.

5. More Upsells

ABM not only improves retention of your clients but also increases the chances of upselling them on higher-tier offerings. It helps marketers determine which accounts are most likely to buy and then develop tailored messaging for each account based on its unique profile. When executed properly, ABM can increase revenue per account as you upsell clients on top tiers and introduce them to new products.

Top 5 Challenges Account-Based Marketers Face

Given the potential benefits of account-based marketing, one must wonder why not all SaaS startups use this form of marketing. Take a look at some of the top barriers to success in SaaS ABM outlined below, along with possible solutions.

1. Tracking and Measuring ABM Results

To know if your account-based marketing methods are working, you have to be able to track and measure the results of your efforts — but this requires the proper tools and analytical insights. Without these tools, you won't be able to accurately track and measure your data. And without an effective measurement system in place, it's impossible to tell whether or not your ABM efforts are actually driving measurable results.

2. Developing Scalable Campaign Assets

Effective ABM requires scalable campaign assets — meaning you’ll need to create assets that are easily customized for different target audiences and repurposed for use across multiple channels. Without these assets and the means to personalize and deploy them at scale, account-based marketing eats up valuable time and resources that many SaaS startups do not have.

3. Justifying the Costs aka Proving ROI

Effective account-based marketing requires proving the ROI with a lower customer acquisition cost than you might see though other lead-generation efforts. Without the tools in place mentioned above, it's nearly impossible to show the ROI of account-based marketing — all of which can make ABM a hard sell within organizations where the marketing team needs executive buy-in.

4. Personalizing Marketing Assets

Effective account-based marketing requires personalizing marketing assets so you're able to connect directly with key decision makers. Again, time and resources can become an issue for SaaS startups that lack the tools to create customized campaigns tailored for specific audiences.

5. Keeping Up With ABM Demand

Account-based marketing differs from general marketing because you're focusing your efforts on a highly curated audience rather than casting a wide net and hoping for a few bites. As such, ABM can be highly demanding as your team tries to keep up with multiple accounts that may all have different needs. 

Our Solution to SaaS Customer Acquisition

At SaaSMQL, we address each of these challenges and more, using a proven system to select and engage with top accounts through highly targeted campaigns that combine digital ads, emails, and direct mail. Plus, we’ve made campaign attribution and analytics a key component of our account-based marketing solutions — tracking every interaction from cold account to opportunity. This allows us to optimize and scale campaigns that demonstrate the highest ROI while diverting efforts away from low-returning investments.

If your SaaS solution sells for $20K or more a year, it’s critical that you implement a comprehensive SaaS ABM strategy. We are experts in helping companies like yours rapidly scale and turn target accounts into qualified opportunities.

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