Why Lifetime Customer Value Matters (a Lot) | PMI

As a marketer, you invest a significant amount of time in your print and multichannel campaigns. It’s essential to understand what (and who) brings in the most revenue. 

With traditional models of evaluating success, the emphasis is placed on immediate results and that is then translated to future marketing campaigns or engagement activities. But is this the best way?

At PMI, we might have to beg to differ. 

An Example 

Think about your business and whatever service or product you offer. Maybe it’s clothes, men’s shaving kits or office supplies. 

Now think about an average marketing campaign you put together. You create personalized emails to current customers, you post on social media and you add high-traffic hashtags to pull people in. You even take an ad out on different websites. 

Then the customers start flooding in. 

Customer No. 1 spends $150 with you. However, this customer buys once, then never comes back. Customer No. 2, on the other hand, spends $75 with you but then returns to buy again and again and again. 

Which One Is More Valuable? 

Initially, Customer No. 1 seems to be the more valuable one. They spent the most money with you, therefore giving you the most profit at that moment. 

But it is Customer No. 2—the one who keeps coming back—who ultimately delivers greater profitability. Although, at the current moment, they didn’t make you the most profit, long term they will make you 10 times more than Customer No.1 ever will. They’ll spend that $75 with you over and over again, continuously delivering the one thing you need—profit. 

This is why it is important to understand (and invest in developing higher) lifetime customer value (LCV).

Understanding LCV

Lifetime customer value is defined as the dollar value of a customer relationship over time. It is this model that drives the marketing decisions of many service-based businesses such as auto clubs, athletic clubs and subscription-based music. 

In an LCV model, the value of each customer isn’t determined by a single transaction. It’s determined by the recurring revenue from that customer over months or even years.

Understanding LCV is essential not just for evaluating which customers are the most important to your marketing efforts but also in developing the profiles of the types of customers you want to attract moving forward. You want to go after the right customers who will deliver the best results.

To start thinking about your customers in terms of LCV, ask questions like,

  • Who are the customers who spend the most money with you within a six-month period? How about 12 months? Three years?
  • What does a high-LCV customer look like? What does a low-LCV customer look like? How are they the same? How are they different?
  • How can you turn a customer with a lower LCV into one with a higher LCV?
  • What are some marketing strategies that pull in the highest amount of LVC customers? The lowest?

By answering these questions, you can then craft your marketing strategies to pinpoint customers and lead them to becoming LCVs. 

Helping You Keep Customers for a Lifetime

LCV is a critical element of marketing strategy, and understanding this concept helps drive better long-term marketing decisions. However, when one first hears about it, it can be a bit overwhelming. 

Luckily, the expert marketing professionals at PMI are here to help. After more than 20 years of experience and thousands of projects, we’re one of the top trusted marketing companies in the Bay Area. 

Talk to us about understanding LCV for your customers—and how to use it to develop customer relationships that drive sales not only in the short term but for years to come. 

 

 

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