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Customer Lifetime Value - How To Turn New Customers Into Lifetime Customers (The CLV Experiment)


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In this article, I’ll answer two all-too-common business questions:

What is customer lifetime value?
How can I use it to help my business grow online?
It goes without saying that “customers are good” for business. Without them, your business… errrr… wouldn’t be. But all customers were NOT created equal.

Published in: Marketing
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Customer Lifetime Value - How To Turn New Customers Into Lifetime Customers (The CLV Experiment)

  1. 1. The CLV Experiment How To Turn New Customers Into Lifetime Customers made with
  2. 2. The other day I met with a local recruiter for lunch by my office in New Orleans... ... and I realized how clueless people are when it comes to using the web to market their business. We met to discuss not only a few contracts that she had found to be a great fit with my digital marketing skill set, but also to pick my brain for ideas on how her placement company could build a network of digital consultants ready-to-hire as a team or "semi-agency" in itself. "Not a bad idea," I told her as she immediately acknowledged the origin of such idea being mine from two years ago... She thanked me for my ideas and feedback on where her company could How To Turn New Customers Into Repeat Customers (the CLV experiment)
  3. 3. win online and off, and also said that she hoped we could meet for lunch again soon. And that's it. She didn't ask for my email address. She didn't offer me - a LONG partnering consultant with her firm - ANY sort of referral incentive or co-promotion for the events she was seeking to disrupt with her new business model. Nothing. In this article, I’ll answer two all-too-common business questions: 1. What is customer lifetime value? 2. How can I use it to help my business grow online? It goes without saying that “customers are good” for business. Without them, your business… errrr… wouldn’t be. But all customers were NOT created equal. Imagine there’s a business called Yoshi’s Yo-Yos. Their handcrafted yo-yos are VERY popular with a variety of customers, but they want to focus on attracting and retaining the “right” ones. Yoshi’s then will sort their existing customers into different types and begin evaluating each for long-term business value...
  4. 4. FREE DOWNLOAD: 6 Metrics ANY Startup or CEO Should Care About Which customers will be most profitable for Yoshi’s in the long run? A) Parents seeking a one-time gift for their kids B) Tourists seeking a novelty item or souvenir C) Toy enthusiasts who like to collect finely crafted yo-yos Toy collectors are the “right” type of customer because they’re much more likely to become a long-term customer of Yoshi’s Yo-Yos and help the company grow more consistently. While I’m just guessing which customers are most valuablein the example given, there’s actually a much more effective way to do this: Customer Lifetime Value (CLV). CLV is your chance to be all :me me me” instead of simply looking at customer painpoints or needs - allowing you to say… What about my needs as a business owner or marketer? How valuable are these customers to me and my business?
  5. 5. How much of my money should be spent to acquire them? CLV helps answer those questions by looking at the entire relationship you have with a type of customer - helping you estimate how much each person is worth to your business. Knowing your target buyers’ CLV helps you grow your base of the “right customers” - which in turn helps you decide how much money you are willing to spend in order to keep those customers coming back for more. So how do you find your customer’s lifetime value? Math. It can be tricky and there are several different ways to do it. But to help you get your feet wet ever-so-gently, I’m about to show you one of the simplest ways to calculate your CLV for business growth. Let’s say Harry is the owner of a growing Executive Recruiting Firm called Harry’s Hiring Help, LLC. To get his CLV, he needs to research how his business has performed in the past. The past behaviors he needs to look for are threefold… Average annual transactions (average annual placements per contractor or job candidate) Average profit per transaction (i.e., requisition or job placement) Average number of years a customer remains(i.e., job candidate frequency / loyalty to the recruiting firm as his or her representative in requisitions) For average annual transactions per customer, Harry notes that most of his candidates are placed once per year. To get theaverage profit per transaction, he looks at the average salary per candidate placed, which is $100k a year. After subtracting expenses, his firm makes 10% profit off each job placement… or $10k annually. For the average number of years candidates remain partnered with the firm, he calculates that his job candidates normally return at least once every year seeking new career opportunities or contracts - which means
  6. 6. they stay on as a customer for 2 years on average. So Harry takes the numbers (1 placement per year, $10k profit per job placement, averaging 2 job placements per candidate lifetime) and plugs them into a formula. Here’s that formula: (Avg Annual Transactions) x (Avg Profit) x (Avg Number of Years) = CLV And here’s how it looks with Harry’s info plugged in: (1) x ($10,000) x (2) = $ 20,000 CLV Now that Harry knows his CLV is $20k, we can now try to improve it by keeping existing customers around longer, or use it to help the company target and convert more valuable prospects, including contractors and full- time job candidates. Let’s see how Harry might get his customer to stick around longer… After checking things out, Harry realized that giving each recruit or candidate more personalized attention will encourage them to return several times over the course of their career. He can now brainstorm a few ways to do exactly that… When a full-time executive or contractor placed by Harry’s Hiring Help has a birthday after job placement, Harry will send them an offer for a “Helping Hand” benefits package - including salary increases taken from the firm’s percentage of the agreement, paid vacation and even travel amenities. What the hell… why not throw in a contest where the winner among clients placed a year or longer wins a free trip? He also creates a loyalty program giving pay increases of 10% of more to executives and contractors who stay on-board with the firm 2 years or more - regardless of hiring company’s participation in the increase. Additionally, there’s a 10% commission to executives and clients who bring
  7. 7. new recruits into job placement. Each new placement. Now let’s see how Harry can use CLV to help the firm convert potential new customers. Harry now realizes that he can use his $20,000 CLV to evaluate which marketing tactics are the most effective for acquiring new job candidates and contractors to be placed in requisitions. Right now, he has the marketing budget split between three marketing channels: 1. Linkedin Recruiter Lite, Paid Ads and InMail messaging 2. SEO + SEM = Job Board, Directory and search engine rankings 3. Content Marketing - Blog, Listing Pages, and Email for Prospecting and Acquisition To find out which is working better for his business, we calculate the CLV for each marketing channel. We start by grouping existing customers by channel they found his company through. Using his trusty formula, Harry then calculates the CLV of each customer segment - which then becomes that marketing channel’s CLV. Linkedin has a $13,000 CLV and search marketing a $19,200 CLV. But the content marketing tactics have a $30,000 CLV, which is much higher than his overall CLV of $20k. Seeing this, Harry should consider putting more of his marketing budget into content marketing tools and tactics, including search engine optimization and email marketing targeting ideal job candidates and contractors via multi-channel, multi-touch campaigns. Harry’s CLV calculations also helped him figure out the most valuable potential job candidates and independent contractors for his recruiting firm - prospects with enough experience and insight to bypass paid advertising and outreach tactics like cold calling or cold emailing… Instead, the ideal candidate seeks targeted listings outside of job boards or directories - finding jobs within their specific niche and career level.
  8. 8. When he calculated the content marketing prospects’ CLV he discovered that they usually stayed longer per placement and/or consistently responded to new opportunities where Harry’s firm would be representing their candidacy… SO… on average, both contractors and executives had a higher average number of annual transactions and triple the average number of years than other placements. Additionally, the “customers” in this segment also have a higher average salary or rate than all others (which likely drives their increase in years each remained loyal to Harry’s over competing firms). DO THIS NOW Let’s do a quick guesstimate of the ole CLV for your business. No pressure… it’s perfectly copacetic if you take a stab at your average transactions or other numbers in the mix. A) What’s your average number of annual transactions per customer? B) What’s the average profit made from each transaction? C) On average, how many years do you keep each customer? CLV = (A) x (B) x (C) BONUS: Average Customer Value (ACV) ACV measures the IMMEDIATE impact that a specific marketing funnel is having on the business. The formula for calculating ACV…
  9. 9. Tripwire Price + (Core Offer Price * Core Offer Conversion Rate) + (Profit Maximizer Price * Profit Maximizer Conversion Rate) = Average Customer Value (ACV) And once you know what a customer is worth… you can calculate how much you can pay for traffic. The formula for calculating Average Visitor Value… Average Customer Value (ACV) * Tripwire Conversion Rate = Average Visitor Value (AVV) Download the ACV Calculator Now... and use dynamic calculations to dominate ANY digital market or niche online! The 2017 Average Customer Value Calculator (PREMIUM VERSION TEMPLATE FREE TO EXISTING MEMBERS OF UF GROWTH LABS)
  10. 10. How to Simplify your Digital Campaign Metrics So what do you think? Did you find this article helpful? Post a comment below and let’s play some idea tennis onmarketing ROI and business metrics… READY FOR NEXT STEPS? Learn the 6 key growth metrics every startup and CMO should know (regardless of size) What is Average Customer Value and Why Should I Care? These 5 Agile Marketing Metrics Should Wow Any Client or Boss What is Closed Loop Marketing Analytics?
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