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Telecommunications, Media & Technology
How Telcos Calculate and Increase Customer Lifetime Value

On paper, customer lifetime value (CLV) sounds like a straightforward metric to assess—simply sum up the total amount that a customer has spent with you. But how CLV—or Lifetime Value (LTV)—is used in an organization is just as important as knowing what its value is.

Ultimately, CLV is about revenue. It’s a business metric. One tactic to increase CLV is increasing personalization, which can drive cross-sell and upsell opportunities or reduce churn probabilities. This can be achieved by connecting customer experiences through an omnichannel lens and ensuring that it is holistic, bridging in-person and digital worlds. Frictionless experiences through customer journey transformation work are therefore an important element of CLV.

However, using CLV successfully is a nuanced issue. In 2024, telco companies that get it right will truly enhance customers’ lives—and achieve considerable return on investment (ROI). Here’s how to analyze and improve CLV for sustained profitability in the telco sector.

“CLV is a business metric. It’s about increasing how much a customer spends with the telco over time.”
Raj Shah, Telecommunications, Media & Technology Lead, North America

Why customer lifetime value is an important metric

Telco brands continue to face the most disruptive market conditions in decades. It’s clear that reevaluating approaches to thrive in an unpredictable business landscape remains imperative. Typically, to grow their business, telcos rely on two main factors—new customer acquisition and existing client retention by increasing customer lifetime value.

But with the growth rate of telco subscribers plateauing, and churn remaining quite low, focusing only on growing the customer base does not necessarily drive growth for telco companies. Additionally, the cost of acquiring customers is about five times the monthly average revenue per customer and telcos need to look to the other side of the PxQ (Power Shares Exchange) equation to drive their growth. This means that industry leaders like Comcast, Verizon and T-Mobile have been looking at increasing the CLV by increasing ARPA (average revenue per account) or ARPU (average revenue per user), to drive overall revenue of the company, while also looking at ways to decrease the cost to service a customer to increase overall profitability.

One of the keys to using CLV is to recognize that it will change over time. Telco companies can use first- and third-party data to project the potential CLV of a customer over time, and adjust pricing, offers and other strategies over the years. As an example, CLV can increase at certain lifetime moments. These are key moments for telco companies to act.

For example, a student graduating from school may switch from their parents’ cellphone plan and is likely to have budget limitations—the customer’s CLV may go down with their slimmer budget, but this budget will likely increase over time as their earnings and budgets increase. Telcos can create a great experience and retain the customer by doing things like moving them from one brand to another, such as from a high-cost prepaid to a lower-cost prepaid, no-frills plan. In doing so, the telco can retain that customer and, by predicting that the customer's CLV is going to increase, can avoid both the cost of churn and reacquisition and be poised to offer new pricing and deals as the customer's needs and budgets increase. It's about moving the customer from their current CLV to their projected CLV.

This is why CLV is a business metric, not a satisfaction metric. Obviously, the more satisfied customers are, the higher their CLV should be. But it's not a direct correlation to satisfaction, it’s about increasing how much a customer spends with the telco over time.

In 2024, telco companies need to seriously consider CLV as a top-level metric in order to meet targets and measure revenue generation capability more than net subscriber additions. CLV is clearly starting to rise to the forefront of how telco leaders are thinking about customers.

How to increase telco customer lifetime value

To increase CLV in the future, there are a few challenges that telco leaders should consider.

Challenge 1:

Identify potential CLV, not historical CLV

Telcos must identify the potential CLV (as opposed to the historical CLV) of a customer. Using predictive AI and machine learning, combined with first- and third-party data, will give telcos a series of projections about a customer’s potential CLV and the factors that may impact it. Customer segmentation allows companies to identify additional markers in a customer’s behavior and customer’s history that indicate that they could have a higher potential CLV. Telco companies can take a “test-and-learn” approach to see whether or not customers are responsive to various initiatives that could be offered to them.

With data spread across customer service systems, legacy OSS/BSS (operations support and business support) systems, and digital touchpoints, telcos need to unify their data. Having a customer data platform (CDP) is foundational in order to have a 360 view of a customer.  It allows businesses to know where their customers have been, where they are now or where they could go, in real time.

Challenge 2:

Bridge the gap in customer experience

After calculating the potential CLV of a customer, how do telcos go about driving new campaigns, products and experiences to improve CLV in the market?

First, combining customer data and unifying experiences helps customers understand telco company products, services, third-party offers and other value-added services. This will help increase ARPA or ARPU which will help increase CLV over time.

Second, using a test-and-learn approach will allow telcos to see which experiences will move the needle. Small, agile experience groups, or pods, should be able to quickly run tests to see if consumers react well and move to purchase new offers.

Finally, as telco customer bases measure in the millions, a small incremental move in the ARPA or ARPU in the top five percent of the customer base can create massive revenue and profitability swings. But the key is knowing which five percent to target. Telcos need to identify customers whose current CLV lags behind their potential CLV and create campaigns and experiences that help bridge that gap for those customers.

It’s time to seize the moment and drive CLV

Telco companies should focus on growing average revenue per customer with additional value-added products and services. Those that drive CLV to enhance customer satisfaction will strengthen relationships, and ultimately increase customer lifetime value.

Raj Shah
Raj Shah
Telecommunications, Media & Technology Lead, North America

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