5 Reasons Customer Lifetime Value Is The Must-Track Metric Of 2015

Incred­i­ble advances in afford­able, real-time, big data ana­lyt­ics solu­tions will help ele­vate CLV to the sta­tus of Gold­en Met­ric.

Paul Wright By Paul Wright from CAKE. Join the discussion » 0 comments

Cus­tomer life­time val­ue (CLV) has, tra­di­tion­al­ly, been under­val­ued as a met­ric by busi­ness­es and those respon­si­ble for mar­ket­ing them. After all, when was the last time you saw the com­bined life­time val­ue of cus­tomers men­tioned in a company’s annu­al report or used as a bar­gain­ing chip in merg­er and acqui­si­tion nego­ti­a­tions? All that may be about to change, how­ev­er, as the incred­i­ble advances in afford­able, real-time, big data ana­lyt­ics solu­tions, com­bined with dig­i­tal mar­keters’ per­pet­u­al need to opti­mize the effec­tive­ness of their online spend­ing, look set to ele­vate CLV to the sta­tus of Gold­en Met­ric for a range of com­pelling rea­sons.


Here are five rea­sons why cus­tomer life­time val­ue will become the “must-track” met­ric of 2015.

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.


Do you con­sid­er cus­tomer life­time val­ue to be a must-track met­ric?

Paul Wright

Written by Paul Wright

Managing Director, Europe, CAKE

Paul leads CAKE's growth and expansion in Europe. He has worked in the performance marketing industry since its early days, building and shaping strategies for some of the UK's largest agencies and brands for more than 18 years.

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