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FINDING “TRUE NORTH” ON YOUR MARKETING COMPASS:
A Practical Guide to Using Customer Cost and Lifetime Value Metrics

 

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THE HIGH COST OF CUSTOMER CHURN

CUSTOMER LIFETIME VALUE

The Metric Marketers Need Most

Marketers today are inundated with marketing metrics, but what metric should be used to determine success?

Customer Lifetime Value (CLV) is the B2B marketer's version of a pocket compass, providing a “true north” to lead marketers out of the woods and let you know where you really stand. 

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LIFETIME VALUE & ACQUISITION COST

The Metric Marketers Need Most

Marketers today are inundated with marketing metrics, but which metrics are the most useful? Let's start with customer lifetime value (CLV) and customer acquisition costs (CAC).

SO WHAT IS CUSTOMER
LIFETIME VALUE?

Customer lifetime value is the total amount of revenue that you will receive over the course of a relationship with a specific customer. 

CLV rounds up all of that value and expresses it as a single
per-account dollar figure.

 

HOW DOES IT HELP ME DETERMINE SUCCESS?

This is the key to figuring out what you’re actually gaining from each customer. 

This metric can help you make strategic decisions about program goals, priorities, target audiences, and resource investments, as well as track the impact of customer success programs.
 

BUT WHY IS IT SO
IMPORTANT?

Those two metrics (CLV and CAC) are powerful on their own, but combining them answers one of the most important questions anyone can ask about a business:
Did you make more money from a customer than you spent to acquire that customer?

 

 

 

TAKING CLV INTO CONSIDERATION CAN HELP YOU ANSWER CRITICAL QUESTIONS LIKE...

Are you finding  your most valuable customers?

Are you targeting them effectively?

Are you making the most out of customer relationships?

CLV CAN HELP YOU DECIDE WHERE TO FOCUS FUTURE EFFORTS
AND FUTURE INVESTMENTS

“The expected lifetime value of a customer represents the maximum allowable acquisition cost of that customer...Then using those numbers, you can craft a marketing budget that is related to firm profitability versus some fussier method of budgeting for marketing expenses.”

-Ruth Stevens, President of eMarketing Strategy

CLV CAN INFORM DAY-TO-DAY
MARKETING DECISIONS AND HELP YOU...

Build a more valuable customer base by uncovering those high-value chunks of your target market and identify how much you can invest to acquire more customers with similar traits.
 

Minimize risks of customers leaving before covering the cost of acquiring them by providing insights so that you can move quickly if cost or retention issues surface.
 

Identify any marketing activities (new market opportunities, prioritizing new target audiences, refocusing your investments, etc.) that may shift the critical balance between CAC and CLV.

Formulate
account-based marketing strategies and investments and/or rate the effectiveness of any ongoing ABM programs. This will allow you to to shift tactics as needed for better results.

CALCULATING YOUR CLV

Do you have what it takes to calculate your CLV? The short answer is, yes. 

One of the most useful aspects of the CLV is its flexibility. Getting started requires nothing more than some fundamental marketing data, a common-sense approach to calculating cost and value metrics, and a commitment to applying these tools as consistently as possible. 

SO, HOW DO YOU CALCULATE CLV?

You can start with three questions that every B2B marketing organization should be able to answer (or at least know where to find the answer):

1. What is the average sales value of your first transaction
with a customer?

2. How much do you typically make per year from a
customer after the first purchase –including
cross-sell and upsell revenue (if relevant)?

3. How long does a typical customer continue to do business with you?
(The answer, ideally, will be in years – not months
or weeks.)

For example, a typical first sale of $20,000, a typical ongoing annual value of $5,000
and a typical customer lifespan of five years (or 5 * $5,000), yields a CLV of $45,000.

WHAT STAND'S IN THE WAY OF CALCULATING CLV?

According to a 2014 Econsultancy study, 

only 42%

of companies can measure CLV. 

According to Ruth Stevens, President of eMarketing Strategy, many firms may simply lack access to the data they need to calculate this and other metrics.

CALCULATE CLV TO BETTER ALLOCATE MARKETING SPEND

“Customer lifetime value has long been used to determine not just campaign effectiveness, but also to determine how much should be spent on marketing, on media buys and other marketing investments...Because obviously, you want a customer to be profitable.”

-Rebecca Lieb, strategic advisor, analyst and author of Content Marketing: How To Use Content To Market Online And In Social Media. 

MAXIMIZE CLV THROUGH RETENTION,
CROSS-SELLING AND UP-SELLING 

Do you have a way to quickly and conveniently review and analyze customer intelligence, including demographics, campaign engagement, website visits, and purchase history?

Tools such as marketing automation can provide data-backed intelligence that will help you identify cross-selling, up-selling, and retention opportunities based on each customer’s
pre-purchase and post-purchase interactions.

Happy customers are your secret weapon to boost lifetime value!

 

70%

of companies say it’s cheaper to retain a customer than to acquire one. And companies say that relationship marketing delivers better ROI than acquisition marketing
by a ratio of 4:1.

TEST YOUR INSTINCTS

Whoops!

Actually, it costs a whopping, 

6 times more 

to get a new customer than to keep an existing one!

You got it!

It costs a whopping, 

6 times more

to get a new customer than to keep an existing one!

There are lots of ways to improve CLV, but one method consistently shines. According to a seminal study published in Harvard Business Review, 

increasing customer retention by 5%
can increase profits by
25% to a massive 95%. 

Marketing automation can help tie shared goals and measurements of success together, including CLV - integrating this vision throughout the entire customer lifecycle. Harness and activate the power of data-driven strategy with marketing automation to build your brand, drive demand, and deliver a customer experience that sets you above the competition. 

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WOULD YOU LIKE A DEEPER DIVE INTO CLV?

Learn more about CAC, CLV, and how to map a path to profit by calculating  your "Compass Quotient (CQ)" with our marketing "compass" metric.

Download your copy of our eBook:
FINDING “TRUE NORTH” ON YOUR MARKETING COMPASS:
A Practical Guide to Using Customer Cost and Lifetime Value Metrics

DOWNLOAD NOW

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