March 20, 2019

Customer Lifetime Value

In this digital age of marketing, the competition is high, as are the stakes. Not only is it important to target and acquire customers, it’s even more essential (and sometimes more difficult) to hang onto them.

Customer lifetime value (CLV) is defined as a measure of the present value of future cash flows attributed to the customer relationship. Analyzing the CLV of each prospect can get pretty tricky, especially in light of how difficult it can be to convert a customer from a lead to a purchaser. Nevertheless, you mustn’t be discouraged – you can be assured that your offerings are enabling loyal buyers to add more value to your company, and here’s how:

Hopefully you’re able to describe the qualities of your best customers, or those with the highest CLV. And, even more hopefully, your judgement is based on all the data you’re able to acquire. If you don’t have your customer data unified, do so by breaking down the internal silos, measuring across the entire path to conversion and creating positive customer experiences. With your data unified, you can begin to develop a CLV model.

The degree of complexity of your CLV model depends on the funds and abilities you are willing and able to devote to this process. When you know what your spending budget is, you are able to determine how complex your model will be.

At Genius Monkey, in order to predict the CLV of a customer – say, 13 years down the pike – we take a close look at certain signals, like the price of the product or service, the demographic information along with the purchase data. Savvy marketers who are able to grasp this concept are pleased with the accuracy of this client-value metric. It helps them to predict the value of a customer at any given point along the path to purchase. This is a great assist for advertisers to learn which customers they should invest in.

According to Genius Monkey’s CRO and Director of Client Solutions, Jeremy Hudgens, “Before advertisers grasp the concept of this metric, they try to grow their customer base, boosting the numbers by increasing their marketing output and ad-spend. Once they understand the importance of establishing a CLV model, they can make better-informed decisions about how to grow their businesses and increase sales. However, they must understand that just your model alone will not drive marketing outcomes. The real determining factor is how you act on your newly-acquired data.”

If you find that you don’t have the resources for a more complex CLV model, you can look at the average revenue per customer, the average return frequency, and the volume of goods or services these potential buyers are seeking from your business. By grouping these customers into as many boxes as you can afford to analyze (with the most simple groupings being below average, average and above average customers), you can seek out commonalities in the data contained within each box. Now, for prospective customers, you can conclude how their data stacks up with your established groupings in order to accurately predict their CLV.

While creating your CLV model is a great way to increase your long-term business sustainability, it’s not a panacea; what really matters is what you do with your new data. You may want to allocate greater spending on your customers with the highest value, as they may require more advertising and customer-relations management dollars.

Genius Monkey knows that each journey is made up of multiple phases, and the CLV is no exception. But, it all begins with you letting your data work on your behalf, and acting on this knowledge by letting it guide you to the discovery of your best customers.

Interested in learning more about how Genius Monkey can boost your conversion rates today?

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