There are many different metrics you can use to measure your commercial performance. Thanks to SaaS (Software as a Service) companies, which host applications in the cloud and make them accessible to end-users through subscription-based pricing models, customer lifetime value (CLV) has become very popular within the marketing community.
The question I will try to answer is: Is customer lifetime value relevant in MedTech sales? For this exercise, you should consider a healthcare provider, such as a hospital, as the customer.
What Is Customer Lifetime Value?
Customer lifetime value is the total revenue a company can expect to generate from a single customer throughout its business relationship with that customer.
For medical equipment, revenue generators include:
Products (disposables and capital equipment)
Services (after-sales service, maintenance, extended warranties, repairs, etc.)
Customer Lifetime Value in MedTech Sales
In any medical market segment, customers are important, but in the medical equipment business, managing and nurturing relationships with individual customers is fundamental.
Medical equipment sales require a complex and often lengthy process to move prospects through the sales funnel. Each stage requires a customized and personalized approach involving different stakeholders, often with conflicting needs.
Focusing on increasing customer loyalty often pays off, as experience shows that acquiring a new customer is significantly more expensive than retaining an existing one, and existing customers tend to spend more than new customers.
Once you have secured a new customer, for example by winning a tender, maintaining the relationship requires a considerable investment of time and resources.
Imagine this scenario: you win a tender and serve a healthcare facility for three years, investing additional time and money. However, when the contract ends, a competitor wins the next tender and takes away the customer despite all the resources you invested.
As already mentioned, acquiring a new customer requires a greater investment than managing existing ones, which is why tracking CLV becomes important. CLV helps identify your highest-value customers, allowing you to dedicate more time and resources to the relationships that generate the greatest return.
To truly capitalize on each customer, you must work to increase their CLV.
Understanding CLV
CLV is not a difficult metric to understand. Let’s say you have secured a new hospital contract to supply your product for two years. Initially, the organization has a limited budget and uses only the products included in the contract.
Throughout the first year, you conduct regular meetings with users, gather feedback, and provide consistent support. These activities eventually pay off. As the contract approaches its expiration, the hospital extends it for another year. In addition, because users are satisfied with the service provided, they expand the relationship by purchasing complementary products that were not included in the original contract.
Assuming the contract is worth 100 per year, the total contract value increases to 300 over three years. Adding the value of the complementary products, let’s say 50, brings the total customer value to 350.
How to Calculate Customer Lifetime Value
Calculating customer lifetime value (CLV) can be straightforward with the right data. The basic formula is:
Customer Value = Average Yearly Purchase Value ($) x Average Customer Lifecycle (Years)
In some cases, calculating CLV is very simple, such as when customer engagement is contractually defined like in a tender.
In other situations, however, it requires estimating both the average duration of the customer lifecycle and the average annual purchase value realistically. These estimations are crucial for an accurate CLV, helping businesses make informed decisions about customer retention and acquisition strategies
Conclusion
CLV in MedTech sales is more than just a metric; it’s a tool that shapes customer retention strategies and pinpoints areas where added value is possible.
As MedTech companies strive to serve their clients more effectively, CLV offers a clear path to strengthen profitability and customer satisfaction by focusing on developing partnerships with healthcare providers.
What do you think about CLV in MedTech? I’d love to hear your thoughts. Don’t forget to subscribe and connect with me on LinkedIn if you’re interested in more discussions on medical marketing and sales.