As hardworking e-commerce marketers, you might measure
success using ROI, Customer Acquisition Rate, Net Profit, and so on.
However, while these
tactics are essential to the growth of any successful company, they don’t tackle
the ultimate objective: managing campaigns to maximise customer lifetime value
Within most marketing channels, ALL customers and orders are
created equal, which means you’re paying the same amount to acquire customers, regardless
The best way to approach this problem is to ask a simple
question: “which customers do I want to come back, and which ones are destroying
my margins?” In other words, what’s a given customer’s true lifetime value, and
how is s/he driving the success or failure of my company?
It’s more than likely that the 80/20 rule applies to most
companies, where 20% of your customers account for the largest portion of your
Does your company currently measure the LTV of your customer
base? Do you know which of your customers are the most valuable? Do you have a customised response for
each caller that contacts your call centre?
If you answered “no” to any of
these, stop reading, and finish the article after you’ve captured this first
Most e-commerce companies know that LTV is a great way to
measure a customer’s net worth to a business. But how many of us actually use
it to optimise our marketing campaigns?
With the spotlight on growth and profit,
most marketing managers get stuck continuously answering the question “what was
your return on ad spend for that campaign?”
Instead, execs should ask “how many
high-LTV customers did you capture?” If they don’t, the company risks focusing only
on immediate ROI, and acquiring customers that absorb expensive services long
into the future.
Just consider: what would you be able to accomplish if you spent
your marketing budget only on customers that added long-term-value to your company?
Less than a decade ago, web portals (Yahoo.com, MSN.com, and
AOL.com) were all the rage and captured a significant portion of retail online
When I studied the LTV of consumers from each of these portals, one
thing was strikingly clear. One portal stood head and shoulders above the rest.
Which one?…….Drumroll…. AOL! (Wow, really? Dial-up? Are you kidding me?).
that not only were those consumers “creatures of habit” with their ISP, but once you captured a loyal AOL consumer, they would come back
to shop again and again and again. Some of these consumers are STILL on AOL
To begin using LTV in your marketing approach, ask
yourself a few questions:
- Have you established metrics to separate
your good customers from the bad (profitability, revenue, repeat purchases,
etc.)? Separate them in groups and deliver targeted campaigns.
- When was the last time you
reviewed each marketing channel to see which one delivered the most
high-LTV customers? For example, how do search customers compare with
those from affiliates?
- How do you treat these customers differently
when they interact with your company across all channels (website,
customer service, deals/discounts)?
Optimising LTV is not a perfect science, but what matters is
that you start somewhere and refine your process.
DSPs now offer display inventory
through an impression-by-impression auction-based system. This is just one
example where it’s imperative to value customers distinctly in real time. Once
you’ve found the ideal customer, create look-alike modelling strategies to find
In the meantime, bring your marketing team together and
develop a plan to optimise your marketing campaigns, so that you can capture those
customers who will pay your bills for years to come.