What it is Lifetime Value & What Can Be Done With It?
Customer Lifetime Value (CLV) is the average revenue that your business makes from each customer throughout their time with your business. It can help you differentiate between the customers that may make high-value one-off purchases each year and customers that make frequent lower value purchases.
Why Use Lifetime Value
Lifetime value is all about acquiring and retaining your best customers to grow your business to meet your KPIs. By having lifetime value as a metric you can target the loyal customers that are going to bring you the most revenue/profit in the long term by aligning your investments and marketing activities to these customers.
How Valuable Are Your Customers?
In some e-commerce businesses, Google suggests that 80% of revenue comes from just 20% of customers. This can show how dependent you can be on a small group of customers that drive you the most revenue.
Begin by looking at the historical data and look at when you first acquired a customer, their past transactions, their behavior and begin to plan what you think their future transactions could look like. By knowing the lifetime value of customers it can help you determine multiple factors when planning marketing activity.
You will perhaps want to consider breaking your customers down by the below factors and then drilling down further to see how profitable your top purchasing customers are.
- Recency – How many days since their last purchase with you?
- Frequency – The number of transactions they have made. How many of your customers are routined or sporadic?
- Do you have customers that are signed up contractually for example memberships, direct debits, phone payments, or are they more infrequent and drop out occasionally due to less rigid payments i.e retail shopping, events, etc?
- Value – How much value have they contributed to you historically?
Once you have evaluated your quality customers you will want to retain and grow this group of customers.
The retention of existing customers in this group is possibly the most important target which can be done by making your purchase journey seamless and encouraging loyalty programs. Increasing the purchase frequency of this group of customers will significantly increase profit.
Continual growth of this customer group is essential for a business and can be done by acquiring similar customers targeting where you first obtained customers in this group.
Lifetime Value Metric In Google Ads And Analytics
Customer lifetime value reporting in Adwords (see below figure) shows historical data for high-value customers based on a 12 month period. This tool is still in beta but once it is enabled by Google it will be located under the ‘Tools’ dropdown under the ‘Measurement section’.
This tool shows the demographic, location, and device. This can be used to manipulate your campaigns to suit a certain product or service for an age range or specific location.
An example of customer lifetime value reporting in Google Analytics can be seen in the figure below, This is only based on the last 90 days. This could be an issue for business that don’t have a high purchase frequency (i.e high-value products), or businesses that provide subscription services as this time period could be too short use for manipulating campaigns.
Once you have CLV set up as a metric you then may want to begin reporting on this on a monthly basis and after a period of time use the data to move the budget around. For example on a campaign where you may be seeing relatively low impression share but a good performance from high value/quality customers, you may want to think about increasing your budget here and gain a competitive advantage as well as gain more quality customers.
You can then combine your uploaded data such as profit with your smart bidding strategy as this will help the account perform towards your business KPI data rather than platform data as it will help you to attain more profitable customers.
When reporting, thought needs to be given whether to use manual or automated bidding. If sales are infrequent it is better to use manual bidding as there will not be enough data for automated strategies to work.
How To Boost Your Lifetime Value Customers
Once you have your customer data list uploaded into Adwords you can then begin to use this audience across the Google network.
Personalization and customised creatives and ad copy are great ways to target those top-performing customers. Use desirable language such as ‘valued customer’ ‘we would like to offer’ – these are great tactics in obtaining these customers in the long term.
Although a lot of time is required to analyse the data and determine the group of customers you want to target, compounded with the requirement to do this for each product and service, however using the customer lifetime metric can make a business significantly grow. You will also grow a loyal customer base and make your company more financially sustainable.