The Case for Lifetime Value as Your Top Priority

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In many companies, marketers and business leaders spend the majority of time talking about how to get new customers. Where can we find new prospects? How do we reach them? What offers will entice them?

But, we know from day 1 of most business-oriented classes and training that it is five times more expensive to attract new customers than to keep old ones.

So I want to make the case for lifetime value. It should be your first and highest priority.

Here’s why: if you’re not getting as much money as you can from each customer you acquire, then each additional new customer will come with lost opportunity.

Said in another way, if you maximize lifetime value, then each new customer will mean more revenue.

Today:

  • You spend all of your time focusing on finding new customers
  • Each new customer is worth $100 in revenue

Tomorrow:

  • You spend all of your time focusing on increasing lifetime value
  • You increase the revenue per customer by 20%

Future:

  • You go back to focusing on new customers
  • But now, each new customer is worth $120 in revenu

What is a Customer Worth?

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Do you know what a customer is worth to your business?

Many marketers actively measure how much they spend and how many customers they generate. With those two pieces of information, it’s easy to measure the marketing cost per customer.

But can we really afford to stop there?

What if your cost per customer is $100. Is that good or bad?

Well, if each customer were worth $1000 to your business, the answer would be different than if they were worth $50.

Knowing what a customer is worth, often referred to as Customer Lifetime Value (CLV), will guide your marketing spend. Obviously a lower acquisition cost is always better, but knowing the CLV lets you know exactly what you can afford to spend and still be profitable.

For some companies, this will be easier than others. Some companies only sell to customers once, and their product or service always costs the same. But most companies sell different products to different customers, at a variety of price points over time.

This information should be available, if you know where to look. Consult your IT team and create a report that shows the total money spent by all customers. Then you can sort and create an average for different products or categories. This average lifetime value for your customers will help you set a target cost per acquisition that you can use to optimize your marketing spend going forward.