You can win new customers but how do you play the long game and earn their loyalty? What separates one-time purchasers from frequent buyers? Understanding your customer lifetime value is critical to identifying high-value clients and creating successful marketing and growth strategies.
What is CLTV?
Customer Lifetime Value (CLTV) is a metric that measures the total revenue a customer generates for your business throughout their relationship. This predictive measurement estimates the net profit your business will make from a specific customer. You can use this knowledge to understand customer behavior, make informed marketing decisions, and optimize your customer acquisition strategy.
Calculating Customer Lifetime Value
A simplified version of calculating CLTV takes your average order value x purchase frequency x customer lifespan. However, this calculation can be very complex depending on what factors you want to look at and what you are trying to accomplish. Other factors to refine calculation might include looking at retention rate, discount rate, and profit margin. Data scientists can analyze your customer data and identify key points in calculating the customer lifetime value for your business.
Using CLTV to Inform Marketing Strategies
Not every customer is a good customer for your business. By understanding the different CLTVs, you can identify which customers you want to invest in, stay in front of, or cut from the list. Using CLTV information will help you make strategic marketing plans that focus your resources on high-value customers.
High-Value Customers:
These are the customers you want to invest in. Develop your relationship with these individuals and focus on retention and upselling. Offer them exclusive discounts, loyalty programs, or personalized recommendations. They should receive your top-tier marketing such as premium mail pieces and omni-channel digital ads.
Medium-Value Customers:
This group of consumers has potential for growth. You can implement strategies to encourage purchase frequency or average order value. Offer cross-selling opportunities or bundled products. Use direct mail to re-engage customers who have become less active.
Low-Value Customers
Before you start investing in this group, take time to analyze the low-value reasons. Are they worth retaining or would it be better to focus on acquiring new customers? If you decide to pursue them, create win-back campaigns with limited-time offers or promotions to encourage activity. Instead of investing in direct mail campaigns, you may want to target this group through digital channels which are more cost efficient to see if you can generate some activity.
Leveraging CLTV to Acquire New Customers
While your greatest ROI will be investing in high-value customers, you don’t want to solely target them. They should receive a healthy portion of your marketing budget, but you also need to stay in front of other customer segments as well as filling your sales funnel.
People will leave for a variety of reasons, so make sure you have a strong prospecting strategy in place. Once you know what your high-value customers look like, you can target prospects who look just like them, giving you laser focus on reaching and winning new customers.
Next Steps
By understanding and leveraging CLTV, you can create more targeted and effective direct marketing campaigns that drive customer loyalty and increase revenue. If you would like to see what your customer lifetime value is and how you can implement it in your marketing campaigns, give us a call.