The Best Customer Lifetime Value Strategies (According to Our Data)

The calculation of customer lifetime value (LTV) at an individual level is not a recent development.

Nonetheless, LTV is among the most crucial metrics that businesses should monitor. So, what does LTV really mean? LTV signifies the total amount a specific customer is projected to spend throughout their relationship with a certain business.

Take Wal-mart as an example; they understand that I shop online every two months and typically spend $20 per transaction. Utilizing predictive modeling, Walmart estimates my lifetime value to be $89.25. This metric includes the costs associated with acquiring me, retaining me, and factors in the discounting of future cash flows.

In today’s landscape, technology firms, such as Umbel, are calculating LTV in a scalable manner to assist businesses in developing a tighter connection with their customers and the channels through which they were acquired. Now that Wal-mart has determined my estimated LTV of $89.25, what strategies can they employ to elevate this figure?

I Grasp Lifetime Value; What’s Next?

Customer acquisition becomes one of the first steps a business can take once they comprehend a customer’s lifetime value. Did a particular individual or group make a purchase after engaging with a display, search, or social advertisement? The current allocation of ad spend across channels is based on the return generated from those ads, rather than the lifetime value of the customers they garner. If search ads yield double the revenue compared to social ads, then search will receive double the funding.

LTV transcends the purchasing session; it encompasses all future potential purchases made by that individual and estimates their spending behavior. A marketer reviewing customer lifetime value by channel may discover that, despite search ads presenting a higher immediate return on ad spend, social ads tend to attract customers with greater lifetime value. Armed with this insight, they may find justification to shift more of the budget towards social ads instead of search.

While paid media acquisition is the most frequently discussed application for companies capable of calculating lifetime value, there are numerous other crucial use cases. Email marketers face daily decisions, such as which segments to target, whom to re-market to, what products to showcase, and how frequently to run replenishment campaigns. Given limited resources, marketers must execute effective campaigns. By understanding the lifetime value of different customer segments, email marketers can better prioritize their messaging strategies.

For instance, should they find that customers buying Yoga calendars have a greater lifetime value than those purchasing the Game of Thrones board game, they should concentrate cross-selling efforts on the higher-value customers.

How Can I Serve Customers With a High LTV?

Customers with higher worth typically have elevated service expectations. They may receive invitations to exclusive events, enjoy early access to promotions, or occasionally get personal phone calls. In sports and entertainment, the highest-value customers are often season ticket holders. These dedicated fans are committed and willing to purchase tickets in advance to enjoy the entire season with their families. Season tickets are available for purchase online as well as through call centers. Call centers implement CRM systems to manage customer records and (ideally) maintain current data about the customers being contacted. Incorporating lifetime value as a metric in the CRM system allows the representatives to prioritize their call lists based on the potential revenue each customer can generate for the team. This metric can also guide them in allocating their time during calls; those with a higher lifetime value will receive more attention compared to those with a lower value.

LTV serves as a vital metric for brands, retailers, sports, and entertainment sectors. It provides a direct measurement of the value generated by these businesses through their customers and reciprocally, the worth those customers contribute. Once a company accurately calculates lifetime value, it can leverage this information across various aspects beyond mere customer acquisition, making it imperative to do so. It influences decision-making across many dimensions of the business.

Ultimately, lifetime value is an influential metric that extends beyond the paid-media team within an organization or agency.