The most valuable marketing metric — and, overall business metric — is Customer Lifetime Value (CLV). Some marketers refer to CLV as Lifetime Value (LTV), which might give away their background. Followers of the Fader Hardie marketing science methods from the Wharton School of Business tend to say CLV. CLV uses predictive analytics to identify your most valuable customers.
When it is clear who is a good customer and who is not, then your marketing can truly be customer-centric and as a result, the basis of all your other metrics should change. Re-frame paid search by CLV and you’ll likely save millions. Re frame surveys, product improvements, and customer service by CLV and your business will generate better insights faster with more financial impact. Here are six reasons why CLV is such a powerful metric.
Knowing the future value of each of your individual customers is at the heart of Customer Centricity. It is easy to think any business school graduate can calculate CLV but this sensitive instrument is prone to failure. Using the right approach to calculate CLV is critical. This podcast with Allison Hartsoe and Artem Mariychin of Zodiac Metrics, discusses the proper way to calculate CLV.
Note: Our former partner, Zodiac has since been acquired by NIKE and their CLV calculation product is no longer available to the public. However, we can quickly calculate CLV for you.
With the identification of your best customers, then you are ready to move into CLV-driven Marketing. Although marketing is often the easiest area to apply CLV strategies, it is not the only area. Some companies prioritize sales calls or otherwise arm the front lines.
Understanding the value of each customer opens the door to analyzing where they came from and creates an opportunity to prospect for more customers who are likely to bring high value to your organization. Here’s one infographic that shows the impact of CLV-driven marketing to an email campaign.
Customer equity, the total predicted CLV of an organization's customers, plays an increasingly important role on the overall valuation of companies. Usually this is the domain of venture capital and private equity investors, so when this power is translated to marketers it allows more powerful and precise use of marketing technology tools as well as AI and Machine Learning such as this example from Publisher’s Clearinghouse. Knowing the predictive future value of your customer base and understanding whether it is growing, shrinking or stagnant can help whether you are pitching for funding, reassuring your board of directors or asking your CFO for more budget.
Many organizations stand up a set of key metrics, but too often these metrics are not aligned or are too soft to be significant performance-drivers. When CLV takes hold of an organization, then every team is pulling in the same direction. By obsessively aligning the entire organization as Electronic Arts around customer data, companies can realize significant competitive advantages. This is not a small project, but the outcome from many years of data-driven change. Here is an overview of the complete 5-7 year process which begins with digital marketing, transforms marketing and ends with significant competitive advantage.