Focusing on the right KPIs is everything if you are looking to build a marketing strategy that will work long term. Customer lifetime value is an often-overlooked yet incredibly powerful KPI that may refocus some of your marketing initiatives once prioritized.

Let's take a closer look at this vitally important metric.

What Is Customer Lifetime Value (CLV)?

CLV refers to the amount of money that a customer will bring to your business over a lifetime of patronage.

This metric includes much more than the current sale; it also represents your customers' future value. If you strategize around your CLV, it will completely change how you prioritize your buyer profiles and which customers you consider essential.

Additionally, having this metric also enables you to calculate other areas of your business. For example, knowing your CLV will allow you to place an upper limit on the amount of money you're willing to spend on customer acquisition. Expanding this into buyer segments means that you will now have realistic budgets for your ad campaigns with educated predictions on how much money those ads will bring back.

Moreover, if you're an agency, this changes the conversations you have with clients as you now have a better idea of how much to spend, whom to spend it on, and how much you can expect from those audiences.

CPA and Customer Lifetime Value

Your cost per acquisition (CPA) metric may undermine your ad efforts if you don't use it alongside CLV.

You may already find this is a point of contention with C-suite executives outside of the marketing discipline. Ad execs in every industry are answering to finance guys about spending $50 to acquire a customer who only spent $30 on your products or services! At first glance, this is a no-brainer. Cut the budget for that customer or customer segment.

However, if you know the value of your newly acquired customer for the duration of your relationship (CLV) it changes things. For instance, if you know this particular customer's CLV is $250 that changes the conversation as you now have a concrete idea of how much this one customer will bring.

Now, spending $50 to obtain a customer that will bring $250 for the duration of your relationship makes more sense and those C-suite conversations simpler.

How to Boost Customer Lifetime Value

Let's disaggregate CLV to find out how it's derived.

CLV = (Average Order Value) AOV x Purchase Frequency x Customer Lifespan.

Increasing CLV means an increase in one or all items in the above equation. How can you do this to reduce your ad stress? Let's find out!

1) Better buyer profiles

Do you know who is buying your products and why they are choosing you? Getting this information will help you immensely as it will allow you to focus on your most valuable customer segments and give you insight into how you should speak to them.

Convince & Convert recommends that you use this approach to build your buyer profiles:

Create broad descriptions of your ideal buyers (a persona).  

Here are two persona examples.

Identify their goals and what's important to them.

To help, answer these questions:

  • What language would they use to describe their problem?
  • What is the biggest blocker to trying your product or service?
  • What is the best way to engage them?

Be found. Locate and list where customers will find you.

For this step Convince & Convert recommends that you that you answer this set of questions:

  • What websites will your personas frequently visit? What blogs do they read?
  • What are the possible search terms they will use?
  • What sort of content do they find most appealing?

Creating accurate buyer profiles will ultimately help you market more effectively so that you keep your customers buying more, buying more frequently and exhibiting more loyalty.

2) Build. Tweak. Repeat.

Once you have your profiles established and insight into what matters to your audience base start building ads that resonate with them; fuel your marketing strategy with your profile criteria. For example, if through building these profiles you found a customer subset that responds well to discounts, play with your creative! Build ads that display your promotional price as a percentage and another that shows it as a dollar amount.

In the examples below we have an instagram ad for Susana and a Facebook ad for Edward as we now know their preferred channels. Additionally, we called out different things in each ad to ensure that we resonate with them.

Also, don't be afraid to test on different marketing channels with the same creative, you'll find that people will respond differently.

3) Loyalty programs

Building loyalty programs come from two directions: 1. brand building and 2. rewards and discounts. As you build your brand, you increase the value of your products in the minds of your customers, who are always fighting buyer's remorse. Take care of this remorse for them, and they will reward you. At the same time, engage your buyers with discounts for their next purchase. Even better — empower THEM to deliver discounts for you to new customers.

Integrate the best practices above into your ad strategy and follow the results. Tweak your ad programs as necessary and keep improving as you go. These tweaks will reduce ad stress while gathering the numbers to convince the C-suite (or your clients) to look to the long term of CLV rather than to CPA and other short-term KPIs.

If you are looking for more information on customer metrics or how to target the right customers, start with DataQ. With years of experience cultivating and assessing marketing KPIs, you are sure to find actionable insights that you can immediately apply to your company's marketing strategy.