Tag Archives: Customer

Customer Lifetime Value

“Anything worth selling is worth selling twice.”

-Ferengi Rule of Acquisition #12

Big data rules everything. With a large enough sample size, sellers and marketers can glean just about any piece of information they could ever want out of datasets. This one aspect of online sales- data collection- is a key tenet of the industry, allowing companies to tighten their marketing efforts, save money where it’s being wasted, and anticipate results, including costs and revenue, well in advance.

Perhaps the single biggest roadblock separating retail sales from online is that in a majority of cases, branded products are provided to brick-and-mortar stores from outside vendors. Because of this, vendors selling products inside often aren’t privy to data collected. All of that information (names, purchase dates, reorder rates, etc) goes to the store, and transactions are processed through the store’s own processors. It’s a closed system, and retail vendors are often left in the dark with only the number of products sold, accompanied by very basic gross/net revenue information. Business decisions are then made based on such broad, general data, leading to slow growth or even worse.

This means that online sellers have a major advantage, in knowing both their audience’s “Cost Per Acquisition” or CPA, and their “Customer Lifetime Value,” or CLV. CPA versus CLV is an enormous component of the online marketing industry, so let’s break it down here.

Every cost associated with a customer making a purchase online is known as the CPA. Advertising spending, cost of a click that led to a sale, operating costs, and even staff wages factor into the CPA, all neatly wrapped up into a dollar amount. Let’s say our intrepid test customer Mike buys a product from us, paying $50 to have it delivered straight to his doorstep.

Mike found us by searching Google and clicking an ad link, and that click cost us $25. Add in the rest of the associated costs, and Mike’s purchase ended up costing our company $75 total, leading to the Mike’s sale losing $25 overall. NEGATIVE $25 therefore becomes Mike’s CLV up until this point.

Sounds bad, right? Well we consider that $75 Mike’s CPA. Now with all of the time and effort and funds spent acquiring Mike as a customer, he’s become loyal to our company (and with data collected per sale we can see each time he orders), and chooses to purchase our product from us regularly. Each time he does, that adds to Mike’s CLV, and we can watch it grow with each purchase. Over the course of the time Mike is a customer, he spends $2000 total. Mike’s CLV jumps to $1975, and over time with the proper data collection, we see enormous profits taken from just the one customer. It’s why Amazon sells its famed Kindle at hardware cost- to build CLV- and it’s brilliant.

If we didn’t have that data available to us, we wouldn’t be able to see CLV and CPA, potentially causing our business to treat customers simply as yet another order number. With these figures here, we can see that keeping loyal customers loyal reaps great rewards. There are a few things we can do to “bump up” customers like Mike’s CLV, as well! Well-targeted email marketing and drip campaigns can be hugely successful in retaining customers, as can marketing on social media! Remarketing, or specifically-targeted marketing aiming to have customers reorder, is another successful tactic often used online.

Just think. Having this data available means that we CAN take advantage of it. We can see just who reordered when, because of what specific piece of marketing. What does this mean? Increased effectiveness. Higher profits overall. The ability to keep customers coming back for more. And all of this means more success for your business.

Think about it. We know WE did.