Tom Fishburne, marketoonist.com

How A/B Testing SaaS Products Increases Customer Lifetime Value (LTV)

It’s no secret that the key to the health of your SaaS company is customer retention. Yet, retaining customers and increasing their lifetime value isn’t just about building in efficiencies. It’s about understanding your customers. It’s about knowing what their intent is when evaluating your product and what value propositions best communicate how your product solves their problems.

This requires captivating your customers at the outset. It means ensuring everything on your website, from CTAs buttons to on-page content, speaks directly to your target customer.

In other words, it’s critical that you deliver what your customers want from the start to increase customer lifetime value (LTV). The solution lies in A/B testing.

Understanding Customer Lifetime Value (LTV)

Before diving into how A/B testing for SaaS products increases customer lifetime value (LTV), let’s first discuss the dynamics of determining LTV for SaaS companies.

LTV measures how much net profit a customer may bring to your business throughout their relationship with you. Due to typical subscription-based pricing, SaaS companies realize customer LTV across a broad period. 

Unfortunately, this is where dreaded churn rears its ugly head. Churn represents those customers who didn’t renew their subscriptions—and it’s a factor you must consider when improving LTV. 

Customer Lifetime Value = (Average Monthly Payment) * Gross Margin %)
Churn Rate

Lowering Customer Acquisition Cost (CAC) to Increase LTV

Once established, LTV is commonly considered in relation to customer acquisition cost (CAC). The benchmark ratio for LTV to CAC is 3:1—meaning that each customer should yield three times what it cost to acquire them.

The lower the cost to acquire a customer, the more profitable the transaction will be. This requires that you align your SaaS product’s value proposition to the right customer. Unclear statements and half-baked attempts at connecting with your audience will only lead to increased churn rates.

If you’re truly solving your target customer’s problem, you’ll increase LTV.

As a SaaS company, you face what may feel like an uphill battle sometimes to initially acquire new customers. You also must address myriad challenges when renewal time comes around. Thankfully, you can tackle these challenges head-on, and thereby increase LTV, through A/B testing.

A/B Testing: Deliver What Your Customers Want to Increase Customer Lifetime Value (LTV)

Typically, customers searching for SaaS products are seeking solutions to improve their life in some way. The ultimate goal of A/B testing during acquisition, then, is to discover which value propositions and preferences best connect with potential customers. The messages you share and how you share them should solidify that your product is the only solution to their problem.

What Is an A/B Testing Program?

A/B testingalso known as split testingis the process of showing two different elements  (A and B) to an audience and measuring which element performs best, validated through statistical significance. The medium for an A/B test can be an email, web page or app. For example, email subject lines are often tested to see which compels the reader to open and click on the offer inside.

In the world of SaaS the most common medium for A/B testing is the website. For example, you may wish to convert visitors of your website into customers, typically by offering a free trial or price quote. Common focus areas for running website A/B tests are the homepage hero (pull them down into the funnel), pricing page, product page, or landing page associated with an ad or social post.

SaaS companies also have the potential to run tests inside of the application (also known as “Feature Flagging”). The goal can be to test how UI changes affect customer engagement or how new features are adopted. Growth marketers can also test messages aimed at increasing the license value, such as adding more users or capacity, or cross-selling additional products or modules. 

Why A/B Testing Reduces SaaS CAC and Improves LTV

A SaaS customer’s churn is often not because of dissatisfaction with your product. Instead, it results from feeling no connection to your company or having a negative experience. 

During the first touches of the acquisition phase, every effort must then be made to give SaaS customers a positive experience and get them to connect. This connection is what will increase SaaS customers’ LTV.

How do you connect? You must speak your target customer’s language. You must appeal to their needs and prove how your SaaS product eliminates their challenges. Each element on your website can help you do just that.

Examples of Successful A/B Testing for SaaS 

Here are several examples of how we’ve used A/B testing here at Cro Metrics to reduce CAC by  improving the customer acquisition process.

  • 22% lift in conversions after restructuring a key page, adding social proof and elevating the primary call to action (CTA)
  • 68% lift in clicks by changing “Subscribe” to “Free Trial” 
  • 249% increase lift in CTA when switching from “Subscribe” to “View Demo” 
  • 22% increase in form submissions on a homepage by relocating social proof points above the fold
  • 10% increase in paid memberships after making CTAs more actionable and consistent across the site

Each of these influenced when, where and why money was spent on a SaaS solution. And none of them required time-consuming or costly changes.

The quality of engagement impacts customer acquisition as well as LTV. To extract the maximum value from acquired customers, all interfaces with customers should be tested and refined. 

How to Get Started With A/B Testing

We know that A/B testing can be overwhelming, especially with so many elements to choose from. The most important thing to do is focus on where you can predict the highest impact with the ability to validate through statistical significance. Here are three key areas to focus on for your first testing efforts. 

Onboarding

A customer’s initial experience will dictate the future of the relationship. Find out what works and what doesn’t from the start. Use A/B testing to evaluate and optimize every part of the customer experience—website, emails, get started guides, in-app content, and so on. All online materials can be tested to understand how users interact with the content and CTAs.

For example, start with the headline on your Home page. Try multiple versions to see which ones earn the most attention from your audience. Avoid clever headlines and focus on a clear value proposition that aligns with your visitor intent. Or test multiple CTAs to see which one obtains a higher conversion rate.

Ongoing Communications

While the initial acquisition is critical for increasing LTV, A/B testing shouldn’t stop there. You also have a great likelihood of improving LTV by optimizing these three customer touchpoints:

  • Retention
  • Upselling
  • Cross-selling

Ongoing content solidifies your connection with your customer. Create meaningful content, such as blog posts, newsletters and emails. Then, use A/B testing to assess their effectiveness.

By optimizing these touchpoints through continual A/B testing, you’ll ensure ongoing value. With SaaS customers, ongoing value can mean the difference between upgrading to the next pricing tier or failing to renew.

Modalities

You should also test the modality for CTAs and then use them to target future offers. For instance, which customers respond more to in-app offers vs. those delivered in email or presented on your website? 

Understanding customer preferences on modalities increases the effectiveness of engagement. Plus, it drives opportunities to increase LTV.

Increase LTV With Data-Driven Growth Strategies by Cro Metrics

A/B testing helps you deliver what your customers want to move them from acquisition to lifetime loyalty. Cro Metrics helps companies grow through strategic, data-driven experimentation. To learn more about our A/B testing services or to get started on your growth strategy, send us a message.