Forget going after “quick wins” and “low-hanging fruit.” You’re probably leaving money on the table.
If you’re one of many who are still focused on traditional KPIs, you’re likely
overspending on people that will never convert and underinvesting in those who
could be your best customers. Ouch.
Calculating lifetime value will help you to understand who your customers are and how to adjust your strategy accordingly to segment your current customers, make new customer acquisition more efficient, and increase your number of high value customers. We partnered with Google to lead the way by concentrating on customer value with a profit-driven marketing approach.
Digital marketing was built on clicks and CPC. A click was the necessary first
step and the most important metric for a time. Yet clicks were just the path to
the goal: a conversion. And so as digital strategies and analysis matured, CPA
became the top dog.
But again, conversions were really just the preamble to the next goal. And with increased ability to implement tracking, revenue became the focus. The picture of success was getting more refined, but was still a limited view. Prioritizing revenue was important, but it didn’t take into account the cost of doing business.
And this brings us where we are today. The smartest marketers have learned how to leverage gross profit as the true best measure of success. They know who their best customers are by modeling LTV and they use this information to inform all of their marketing decisions.
Profit-driven marketing puts into numbers what everyone already knows: that some customers are worth more than others. It’s only when you know the difference in your customer groups and their value that you can optimize for profit. To make the changes you need, you have to calculate LTV.
High Value Customers
These are your best customers who will spend the most and have a very high LTV. You should invest more to get these great customers.
Good Value Customers
While they aren’t your VIPs, these customers have a solid LTV. By focusing on loyalty and nurturing efforts, you can convert them into High Value Customers. You will do less to invest in these customers.
Once you’ve established your KPIs and calculated your LTV, you need to implement
profit-driven strategies. Here are just a few examples for digital.
Paid Search - This channel has very clear LTV examples. You might find that your best CPC is for keywords such as “low cost pens.” But if your best customers are calligraphers searching for “luxury pens,” then it will still makes sense to bid higher on those keywords.
Social - Once you have your cohorts you can utilize them for social as well. You can match your calligraphers in Facebook (and Google) to get insights into their likes and identifiers such as location, age, and more. This helps you to acquire new customers as well as market best to your current customers.
Email - While there isn’t a bidding system for email, it can also be an excellent tool for leveraging LTV. Email will help you nurture customers. Some students will become calligraphers, after all! Segmentation is key in email, and each audience should receive custom messaging that reflects their group. Remember, LTV should inform all of your digital campaigns!
No one wants to leave money on the table. But if you’re not using LTV to guide your
marketing strategy, that’s what you’re doing. There are challenges to implementing
profit-driven marketing strategies, yet the alternative is worse: not making the most profit
that you can.
If you need help analyzing your LTV or have a few more questions before committing to the profit-driven evolution, contact the experts here.