5 Reasons Customer Lifetime Value Is The Must-Track Metric
Incredible advances in affordable, real-time, big data analytics solutions will help elevate CLV to the status of Golden Metric.
Here are five reasons why customer lifetime value will become the “must-track” metric.
1. CLV Can Provide Detailed Insights Into Your Business
Defining CLV, simply put, involves calculating how much net value a customer will generate over the full span of their relationship with a business. There are lots of detailed mathematical equations and complex formulas to be found online offering advice on how to construct such a calculation so I won’t bore you with any of that stuff here.
What that CLV calculation looks like (i.e., modeling the lifetime value of your customers) depends on your own individual business model and the specific customer actions that create value for your business. In this way, CLV allows advertisers to gain a greater understanding of their own business and develop multiple strategies geared toward acquiring different sorts of valued customers.
Take the example of a mobile phone company. One marketing campaign might target high-net worth customers with high-value service packages over a shorter contract term, while another campaign will target customers seeking lower monthly charges and less functionality over a longer contract period.
2. CLV Is Future-Facing
One of the most interesting and exciting things about CLV as a metric is that it is a forward-looking statement. Unlike commonly cited metrics like year-over-year revenue growth, CLV provides much more than a snapshot of current and past performance, it also offers insight into the value a customer (or group of customers) holds for a business moving forward.
This element of foresight can prove invaluable in the planning and development of future growth and marketing strategies by delivering a better view of the immediate and future health of the business and its revenues.
3. CLV Can Help You Optimize Your Marketing Spend
Knowing the future value of your business and being able to highlight the sort of customers generating most value over time allows you to go to market with a more sophisticated and refined advertising strategy.
Having a clear sight of the CLV of various customer types allows you to tell your publishers and affiliates marketing partners: “These are the types of customer you’re sending me right now and this is the value of these customers to our business.” You can then demonstrate why you want to pay less or, alternatively, in the case of high-performing publishers/affiliates, tell them that you are willing pay a premium for the acquisition of specific desirable customer types.
Also, by providing CLV transparency to your partners they in turn can optimize their own traffic in real time to earn greater revenue and align their goals with those of the advertiser.
Today’s generation of multi-channel tracking solutions mean that when a business launches a new campaign, it is able to identify which advertising placements or digital channels are most effective, which are driving value and which are displaying a high-churn rate among their acquisitions. Armed with data showing the influence of individual ads or channels on CLV, you can then identify opportunities to spend more aggressively with specific publishers, potentially forcing some of your competitors out from prime marketing space in the process.
4. CLV Can Inform Real-Time Payment Strategies
As the digital marketing arena has evolved, so has marketers’ understanding of consumers’ online behavior, leading to increasingly sophisticated strategies and relationships between advertisers, online publishers, and affiliates.
Let’s take the example of an advertiser with payouts to publishers for acquiring a customer who downloads the advertiser’s app. In many cases, that used to be the end of the customer journey for a business (i.e. the acquisition goals were simply to have as many apps downloaded as possible).
However, the reality is that most apps are opened once after download and ignored from then on. Paying-out for a download alone begins to look like a bad idea.
Advances in tracking technology now mean that we that we can track user actions in-app, beyond the initial download, to better understand customer engagement and how it relates to CLV. Having identified the actions that contribute to a business’s CLV, these can be tracked in real-time and, therefore, paid-out in real time too, providing publishers and affiliates with renewed incentives to drive the customer-types you’re after.
5. CLV Can Help Shape Loyalty Programs, Retention Strategies
In addition to CLV’s usefulness in helping to devise successful customer acquisition strategies, it also has an obvious role to play in helping to shape and validate customer retention and loyalty programs.
Acquiring customers can be an expensive business. Anything than can be done to reduce customer churn can have a major impact on the financial health of a business.
For example, credit card operators traditionally experience high churn due to “rate surfers” who change their card supplier every 12 months to leverage the best interest rate deals. The clock is ticking on those customers from the minute they sign-on, decreasing their overall CLV.
Analyzing the real-time impact of retention campaigns on CLV provides crucial insights into the best ways to encourage loyalty and engagement among your customers.
Recognizing and calculating what CLV is to your business can, in turn, help to uncover how CLV is influenced by providing various perks (e.g., gifts tokens, experience days, priority tickets, exclusive content, etc.) to improve customer experience and encourage greater levels of retention.