Let’s
face it. When it comes to profitability, some customers are worth more than
others. That’s why, before deploying any marketing plan, you need to know who your
most profitable customers are.
Understanding
Customer Lifetime Value (CLV), or how much a customer is worth over time, is a
critical part of the equation. One customer may spend $250 with you initially,
but then never order again. Another customer may order only $150 the first
time, but then become a loyal (and far more profitable) customer who orders
thousands of dollars’ worth of products over time.
This
is why in order to understand the true profitability of your customers, you
need to look at campaigns from a broader perspective. If you were to look at
the ROI of the above campaign in the short term, you would think the first
customer netted the highest ROI. But it was the second who was the most
profitable.
How
do you determine CLV? First, you need to decide which measure (or measures) you
are going to use.
- Do
you want to determine CLV based on revenue generated?
- Do
you want to use profitability?
- Do
you want to include hard dollar values only?
- How
about the frequency of purchases? Is having consistent, predictable
revenue streams more critical than larger, less consistent ones?
- How
important are other factors, such as social media influence, to your
calculations?
You
also want to consider your customer acquisition cost (CAC). If you use static
direct mail combined with generic email, you may spend less but net fewer
customers. Or you can run a short-run, highly targeted campaign that costs more
overall, but acquires more customers and has a lower CAC that results in a
higher CLV.
Customer
Lifetime Value is an important calculation, but its value to your marketing
strategy depends on the accuracy of the numbers you put in. Talk to us about
creating accurate CLVs for your customers.
Please give us a call at 440-946-0606
Or visit our website here for more information.
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Please give us a call at 440-946-0606
Or visit our website here for more information.
Share on LinkedIn
