Customer Lifetime Value (CLV) - Is It Just Another Acronym?
Updated: Mar 17, 2020
Well, CLV is an acronym. But it’s not “just” another acronym. It’s a new acronym that shines a spotlight on a critically important and age-old principle. Long-term recurring revenue always beats one-and-done revenue. Furthermore, it’s a win-win for you and your customers. In other words, embracing the concept of a Customer’s Lifetime Value benefits your customer just as much as it benefits you as a technology provider.
Nowhere is this concept more evident than in the growing, soaring popularity of “XaaS.”
How “XaaS” Creates CLV
The “as a Service” model trickled onto our radar decades ago when Software as a Service (SaaS) was first introduced. It was a way for customers to avoid high upfront software ownership costs, a way to spread the cost over time with a predictable, fixed monthly subscription to the software of their choice, bundled with the services they would need to host, maintain, and support that software.
However, it took a while for the SaaS model to take hold because many companies were rather stuck with the traditional idea of ownership.
Fast forward to 2020, where now just about every kind of technology you can think of is available “as a Service.” That’s what “XaaS” means. In addition to SaaS, we now have DaaS (Device as a Service), IaaS (Infrastructure as a Service), PaaS (Platform as a Service), UCaaS (Unified Communications as a Service), DBaaS (Database as a Service), MaaS (Malware as a Service), DRaaS (Disaster Recovery as Service), NaaS (Network as a Service), and the list goes on.
Why? Because channel providers have realized the long-term CLV of being able to bundle their services along with their products. Selling the “as a Service” model means that channel partners have these customers for life. And their customers have realized the incredible benefits of foregoing ownership.
What are some of the benefits that the end-users reap from XaaS?
No upfront capital expenses (CapEx)
Moving CapEx to OpEx
Predictable monthly costs
Alleviating budgeting uncertainty
Single vendor for products and related services
Services bundled into products might include:
- Automatic updates
- Automatic upgrades
- Automatic patches
Always being on the latest versions of the software or apps
XaaS is a game-changer for everyone. And it dovetails beautifully with the CLV concept. A prime example is Microsoft’s Dynamics 365 ERP software. Dynamics 365 is sold and delivered “as a Service.” For Microsoft partners who “sell” Dynamics 365, this means that their customers simply continue paying the monthly subscription fee and the product is continuously updated as new functionality is added. They become customers for life.
For their customers, this means that they just sit back and let their ERP solution continue working for them without any effort on their part. They don’t have to budget for expensive upgrades because their monthly subscription covers everything. Nor do these customers have to go through the process of buying new software every few years.