A Conventional Focus is Incrementally Killing Your Lifetime Customer Value

There is an age-old adage that says make new friends but keep the old, as one is silver and the other gold. These words couldn’t ring truer when it comes to your customers as a single deal will rarely bring the same value as multiple deals over an extended period. No one is implying that costs and attention shouldn’t be dedicated to new client acquisition. They absolutely should. We’re just bringing light to the idea that building a foundation of repeat business is the recipe for not only long-term success, but for profit predictability.

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But the $64K question is how does one accomplish this? The obvious answer is that you need to keep your existing customer base more than satisfied—you need to keep them happy. But this isn’t as easy as it seems with a relatively recent Bain & Company study showing that 60-80% of customers—who are self-described as satisfied with a product or service—for one reason or another, don’t repeat business with the company that satisfied them. 

But there’s more. To run a profitably successful, long-term business, prescribing to the conventional approach to marketing, where you simply take your product and target it to broader audience segments who might need it, is no longer sufficient. That thinking is too short-sighted, focusing too heavily on prospecting to make that first conversion—which while exciting, gets expensive. Sure, new customers are great, but the impact to your bottom line will always be fleeting—fluctuating in fits and spurts. And once that shiny new customer lapses? Do not pass Go. Do not collect $200.

Odds are you’ll have to start all over.

So instead, you need to invest in playing the long game: the lifetime-value (LTV) model. This model focuses on identifying the distinct values and/or experiences your brand can deliver to your audience segments over their lifetime and invest in hitting them repeatedly with personalized messages that speak directly to their unique needs during each phase of the customer lifecycle. By doing so, you will decrease overall costs by increasing the lifetime value of your customers, which in turn, ensures your bottom line maintains a steady flow of repeat sales over the next three, four, five—even ten years! And while this may sound simple, in practice, it’s anything but.

This blog post sets out to both define what it means to be a lifetime customer as well as provide a checklist of the things your business needs to do to execute a successful lifetime-value model.

How do You Define a Lifetime Customer?

To optimize campaigns against a lifetime value, you must first define how lifetime value will be measured. The ultimate goal is that a retailer needs to be able to fill in this statement’s blanks:

“I am willing to pay up to $___ to acquire a new customer based on the fact that, on average, that customer will generate $____ revenue at a __% margin over their lifetime.”

Further, a retailer needs to define several terms including:

  • What is a new customer?
    • This is commonly determined as any customer who hasn’t purchased in the previous 24 months.
  • How long of a period do I consider to be “lifetime” for the purposes of determining an appropriate cost per acquisition (CPA)?
    • This may be determined to be a new customer’s revenue generated, from all sources, within 24-48 months of their first purchase.

Can You Track That?

The short answer is yes. However, how a business agrees on the definition of lifetime value, what defines a new customer and how much they can spend to acquire an average customer and remain profitable, will depend on the data that is available. An analyst with access to CRM data should be able to determine the appropriate lifetime values once the terms have been clearly defined by a business.

To help point you in the right direction, here is Google’s documentation for importing CRM data into Google Analytics.

Selecting the Right Channels

A retailer should go even further by combining data from a multi-touch attribution platform with their CRM-based LTV data. With this level of data, a business can determine the ideal CPA goal by acquisition channel.  For example, it may be determined that when a new customer is introduced via Social Media, their LTV is significantly higher than average. This level of data will inform where marketing dollars could be most efficiently invested across channels to meet specific goals.

A retailer can then take yet another step and look at LTV data by acquisition channel and product category. A business may determine that marketing a certain product category to “new” customers via a certain channel (Display, Social Media, etc.), produces a higher LTV and therefore justifies a higher CPA than other channels. Or, it may be determined that existing customers respond best to a certain product category via email marketing versus display retargeting. 

Be prepared as sometimes this data will conflict with previously accepted KPIs. Maybe a business has seen that CPCs are high for a certain channel or conversion rate is low, and has adjusted their strategy as a result. Bringing LTV to each channel and product category empowers a business to make much more informed and profitable decisions than more basic KPIs enable.

Ultimately, this will inform how products/product categories should be chosen for each channel to help meet specific business objectives.

Tailoring the Message

So you have your products and you’ve determined how to define and where to target your intended audiences but the results are not proving as fruitful as intended. So where did you go wrong? You forgot that it’s not JUST the medium, it’s the message. As noted, delivering highly personalized messages that speak directly to your customer’s unique needs are important. Customers don’t simply repeat buy based on satisfaction alone—price, convenience and changes in lifestyle and life stages all affect purchasing decisions. So retailers must plan for and develop messages that demonstrate the repeated value and untapped use cases for products aligned with where and how their customers are shopping at a specific point in time. And of course, make sure that message fits the specifications and accepted best practices of the medium where it’s being deployed.

As with anything else, always remember to follow the report, refine and repeat rule—using all the data you’ve gathered to derive insights that will inform the next iteration of the program until your individual objectives are satisfied.

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