The Value of Focusing on LTV


Big Data and analytics are more than just buzzwords in modern marketing. Digital channels give us more data to work from than ever. We can see when a prospect opens an email, clicks a link or interacts with any of our content. All of that data produces a whole host of numbers, not all of which are created equal when building a long-term business strategy. Lifetime Value (LTV) cuts through a lot of the noise and gets right to the ROI. CTRs, bounce rate, conversion rates and dozens of other metrics give an insight into performance for a specific piece of marketing, but they don’t paint a picture of overall success. LTV can when used properly.

What is LTV?

Lifetime Value is the measure of the worth of a new customer. Essentially, it is what you can expect a customer to spend during their entire engagement with your company, minus any expenses. If you need some help figuring out LTV, Kissmetrics has a great infographic that explains the process. When we work with a client, one of the first things we want to know is the average LTV. Why? Because knowing how much a client is worth to the business can, and should, guide marketing efforts. If customer acquisition costs creep up much past 10 percent of the customer’s LTV, it could be a symptom of a looming sustainability issue.

Putting the Focus on Customer Retention AND Acquisition

We see numerous businesses that spend a lot of time focusing on generating new customers and not much on retaining their existing customer base. That’s a costly marketing decision. The most valuable customers are the ones that stick around the longest, but an acquisition-only model ignores this segment. Did you know:

  • Stable businesses derive at least 25% of sales from repeat customers.
  • Repeat customers spend an average of 20% more than first-time customers.
  • A 5% lift in customer retention can turn into a 95% lift in profits.

Existing customers have more value in terms of profit than new customers. Of course, you do need to bring in new customers to create a sustainable business, but you shouldn’t ignore your high-spending and valuable repeat buyers, either. In fact, the more new customers you can transition into repeat customers the higher the LTV and the better for your bottom line.

How to Boost Your LTV

Knowing that customer retention can be such a power profit-making tool, why do major companies like cell phone and cable TV providers focus their efforts on new customers only? We don’t know either, but what we do know is that for a sustainable and healthy business model you need both. After all, you only have a 5-20 percent chance of a sale with a new customer, but your odds jump to 60-70 percent with an existing customer. With that in mind, here are a few tips that can help develop customer relationships and turn new customers into repeat business.

1. Engage as Often as Possible

Customers don’t spend all of their time on one digital channel, so neither should you. If you want to boost the potential for a sale, make sure to meet your customers where they are most comfortable. Leverage Facebook, Instagram, Pinterest and any other social media popular with your customer base. Even something as simple as adding social sharing buttons can generate more ways to interact with customers. And don’t forget to develop a presence offline. Your customers aren’t just an online presence.

2. Personalize Your Communications

Email blasts may not generate huge conversion rates, but personalizing the communication can turn any email into a conversation starter. Invite customers to tell you what they want and tailor your communications based on their replies. Segmenting your customers allows you to offer a personalized experience that can scale with your business.

3. Consider a Subscription Model

Subscription models can transform a one-time customer into a long-term relationship and instantly help boost your LTV. Subscription models work in virtually every industry from annual software licensing to personal care products.

4. Invest in Good Customer Service

Good customer service means more satisfied customers. Satisfied customers are more likely to recommend your service. When small changes to retention numbers can generate big numbers in profits, making customer service a priority is an obvious solution.

Mistakes to Avoid When Focusing on LTV

When done well, LTV focused planning can help drive revenue and create stable, sustainable sources of revenue. When done poorly, it can lead to ballooning customer acquisition costs, increasing investments for level growth and a burn and churn rate that only goes up. As you shift focus to LTV as a success metric, don’t:

  • Forget to diversify your marketing spend
  • Over-invest in new customers
  • Assume all customers are created equal

Many businesses find that the more it costs to bring in a customer, the less value the customer has. A customer that made a purchase with a coupon offer might only buy when a similar offer is available. Offering price discounts to generate business can actually lower your LTV, even as you dramatically expand your customer base.

To build long-term relationships, you need to offer authentic communication. That means taking the time to follow up with customers. The more customized their buying experience, the more likely they are to come back again and again.

If you would like to know more about LTV and how it works, please click here and fill out the form, so we’re able to help.

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