Maximizing the Customer Lifecycle Value
Most successful affiliate programs promote their conversions statistics as a measure of their success, and rightly so. Sadly, so many of the once high flying programs with great conversion rates are now suffering (or failing). Why is this?
Unfortunately, most business owners do not focus on (or understand) what Customer Lifecycle Value (CLV) is and how it relates to their profits. In simple terms, the CLV is equal to the amount of money your business will make from any one customer. To most, what matters most is to increase revenue by continuously acquiring new one-shot customers. This can be a deadly trap, and this article is about avoiding that trap. How do you do this? The most direct way to maximize CLV is to deliver to each customer more of what each customer most values about your business.
Consider the facts. The geeks at Harvard, Columbia and Stanford Business Schools have a lot of statistics increasing customer retention by 50 percent results in a profit increase of at least 25 percent. It is 5 to 10 times costlier to get a new customer than to retain an existing one Therefore, more focus should be on growing business by retaining existing customers that bring in real value. Measuring the CLV for your business offers two major benefits.
First, accurately measuring the CLV gives your business a metric to determine how much you can afford to invest (in labor, time and money) to acquire customers though various initiatives. Second, recognizing that the CLV represents an ongoing stream of revenue rather than just a one-shot sale, provide insight on what marketing efforts will likely produce more value for your business over time.
It is easy to make a basic measure of CLV (that avoids a present value computation) and here is a simple table to demonstrate.
In words, you need to tabulate how much revenue you generate for different classes of customers, compute your gross profit and acquisition costs to compute the customer lifetime value. Naturally, one can make this analysis more complex, but the basic idea is that knowing how much profit your business makes per customer type lets you focus your attention on pleasing your most valuable customers, rather than treating them all the same way.
Now, ask yourself these three questions:
- Once a visitor becomes a paying customer, do you actively monitor or track what s/he does on your websites and record that information? (psst, if you just answered “No” you can’t answer questions 2 or 3, but don’t worry, there is help coming.)
- Do you change the way your site responds to each customer based on how and when and over what period of time s/he uses your site?
- Do you monitor their activity and do you have alerts to tell you if their activity changes substantially in a manner that may indicate defection?
If you answer Yes to all three questions, you are doing a great deal to maximize CLV, and you can likely improve this value by focusing more attention on those customers that generate most of your profit. Some simple methods to do so include:
- Invite high CLV customers to enjoy exclusive offers, products, content or live materials.
- Establish an elite customer level which cannot be purchased and is only available to high CLV customers.
- Establish loyalty programs which reward high CLV customers with incentives and free products or services to loyal customers after a certain period of time.
But if you are not able to answer yes to all three questions, then you are leaving money on the table and its time to start taking action.
Step one — and the most important and immediate requirement to maximize CLV —is to identify each customer individually and keep track of what they do on your site. This can be achieved through very clever programming, using java scripting and tracking cookies to connect to your customer database and watch each customer use your site over time. Alternatively, you can employ pre-built solutions that allow you to track customer behavior over time and (with varying levels) of effort change how you interact with customers based on that activity. Vendors representing this spectrum include Parker Sofware (www.whoseon.com), Open Tracker (www.opentracker.net), Click Truth (www.clicktruth.com) and MVI (www.mvilivestats.com)
Step two requires you to reach out to high CLV customers to communicate your appreciation and private offerings to them. Here you imagination is your guide and the triggers for such offers are much easier to deploy once you keep track of your customers individually.
Step three requires you to intercede to prevent high CLV customers from departing your service, and customizing pre-cancellation retention incentives before they leave you is vital. Again, this is an easier task to accomplish once you keep track of your customers individually and nearly impossible to do so without. Recognize that it’s far easier to persuade a customer to stay with your business before they make up their mind to leave you. In simple terms, the best defense is a good offense.
While managing your online customers uniquely requires investments in technology and creativity, it pays endless benefits over time. Shifting your focus to Customer Lifecycle Value will soon be a requirement to remain competitive so doing logically and with forethought is best. Having a proper understanding of Customer Lifecycle Value has myriad benefits all of which can be used to Reboot your online business and dramatically increase your profit.