Optimising for your most profitable long-term customers

Written on July 20, 2011 – 11:57 pm | by Ashley Johnson

As hardworking e-commerce marketers, you might measure success using ROI, Customer Acquisition Rate, Net Profit, and so on.

However, while these tactics are essential to the growth of any successful company, they don’t tackle the ultimate objective: managing campaigns to maximise customer lifetime value (LTV).

Within most marketing channels, ALL customers and orders are created equal, which means you’re paying the same amount to acquire customers, regardless of quality.

The best way to approach this problem is to ask a simple question: “which customers do I want to come back, and which ones are destroying my margins?” In other words, what’s a given customer’s true lifetime value, and how is s/he driving the success or failure of my company?

It’s more than likely that the 80/20 rule applies to most companies, where 20% of your customers account for the largest portion of your ongoing business.

Does your company currently measure the LTV of your customer base? Do you know which of your customers are the most valuable? Do you have a customised response for each caller that contacts your call centre?

If you answered “no” to any of these, stop reading, and finish the article after you’ve captured this first opportunity.

Most e-commerce companies know that LTV is a great way to measure a customer’s net worth to a business. But how many of us actually use it to optimise our marketing campaigns?

With the spotlight on growth and profit, most marketing managers get stuck continuously answering the question “what was your return on ad spend for that campaign?”

Instead, execs should ask “how many high-LTV customers did you capture?” If they don’t, the company risks focusing only on immediate ROI, and acquiring customers that absorb expensive services long into the future.

Just consider: what would you be able to accomplish if you spent your marketing budget only on customers that added long-term-value to your company?

Less than a decade ago, web portals (Yahoo.com, MSN.com, and AOL.com) were all the rage and captured a significant portion of retail online spend.

When I studied the LTV of consumers from each of these portals, one thing was strikingly clear. One portal stood head and shoulders above the rest. Which one?…….Drumroll…. AOL! (Wow, really? Dial-up? Are you kidding me?).

We discovered that not only were those consumers “creatures of habit” with their ISP, but once you captured a loyal AOL consumer, they would come back to shop again and again and again. Some of these consumers are STILL on AOL dial-up!

To begin using LTV in your marketing approach, ask yourself a few questions:

Optimising LTV is not a perfect science, but what matters is that you start somewhere and refine your process.

DSPs now offer display inventory through an impression-by-impression auction-based system. This is just one example where it’s imperative to value customers distinctly in real time. Once you’ve found the ideal customer, create look-alike modelling strategies to find their friends!

In the meantime, bring your marketing team together and develop a plan to optimise your marketing campaigns, so that you can capture those customers who will pay your bills for years to come.

According to the report, there has been a significant increase since 2009 in the extent to which companies are segmenting visitors and customers.

The report contains a detailed overview of the tools, strategies, and processes used by companies to improve their conversion rates. The research covers uptake of best practice, barriers to improving conversion rates, and insight into the different ways used to segment site customers and visitors.

Perfect Business!