What is Lifetime Value – Why Your Campaigns Suck

From time to time, I’ll mention (LTV) or Life Time Value in a strategic conversation with a client. Often I’ll get blank stares back, either because they don’t’ know what LTV is, or they don’t care. I get it, it’s not something most people stay awake at night pondering. But, I was fortunate enough to come up in a few companies that truly valued LTV, and actually built their campaigns around building a better Lifetime Value metric over time.

So, what is Lifetime Value, LTV?

Lifetime Value Defined

According to Hubspot, Lifetime Value is:

…lifetime value is a metric that indicates the total revenue a business can reasonably expect from a single customer account throughout the business relationship.

Why does it matter? 

Customer Acquisition can be tough, but it’s not as tough to simply take care of an existing client who has already bought into your brand and products/services. Lifetime Value measures the revenue you can expect from a client over time. And, by tweaking your services, the client experience, the offers and pricing, as well as the follow-through for customers, you can affect this number. So, knowing you have an LTV of say $10,000 for the average customer, and then having a goal set of $12,000, you now know the gap that needs to be addressed, and can start building strategies to reach the goal.

Drilling Down

Taking that concept one step further, it is important to consider how a client entered your funnel, and which products/services they purchased initially. You can then start building LTV numbers for customers who enter the funnel in different ways. Knowing that a customer who entered from a social media ad, then eventually purchased, has a lifetime value of $8,500 tells you what you can expect, but also gives you a performance metric you can target to beat over time with various tactic changes.

Campaign Level Changes

LTV is the best metric for understanding long-term client potential and forecasting more long term. But, how does it help my campaigns that are sucking right now? Lifetime Value affects campaigns most specifically through informing your testing strategy. For instance, if you know a customer who comes into your funnel through a Youtube Ad and converts, has an LTV of $9,000, you can start an A/B split testing strategy and follow those conversions over time. After some time has passed you may see that test B is winning by tracking toward a $9,200 LTV, vs. the $9,000 control test, which may push you to make a decision to make the test B the new control, and start testing other options… slowly pushing LTV up over time. Over time you will slowly start building campaigns that speak to what your clients want, not what you THINK THEY WANT. 

This is COMPLEX

Developing strategy on improving Lifetime Value can admittedly be complex. However, calculating LTV won’t be – if you keep solid sales data. So, the first step is to calculate your current LTV. Next, calculate it by customer groups or how they entered the funnel. Don’t stop at LTV, create some buckets under that to start to build out customer personas. Then, rely on a well-trained marketing leader to build a strategy around testing and improving LTV. It takes time. But over the long haul a company can reap serious rewards by cultivating the long-term relationships with clients. And that, my friends, is what marketing is all about.

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And, as always, if you need help measuring and understanding Life Time Value (LTV), contact our team today. We are happy to offer a no cost consultation to see if we can help.