Think about all the important people in your life. Is it your best friend you’ve known since kindergarten, a spouse, or a parent? Why are they so important to us? Affinity, experiences, and trust. All of this has been built over a lifetime, and nurturing these relationships has become part of our DNA.
As professionals, we of course value our customers, but we can’t ignore the lifetime value of these customers and how this impacts our business. Just like being attentive to those who are important to us on a personal level, our client relationships, on a professional level, need continuous investment and nourishment.
Our customers’ lifetime value is something that cannot be “hacked.” It needs to be earned.
But each customer has unique wants, tastes, and needs. How can you invest in and nurture these relationships in ways that drive the continued success and maximum profitability of your company?
Customer lifetime value.
What Is Customer Lifetime Value?
According to Amy Gallo in the Harvard Business Review, customer lifetime value is the profit a person or company is expected to generate for your firm – as long as that person or company remains a customer. As a marketing mindset, customer lifetime value aims to develop strategies that help businesses foster individualized customer relationships with long-term clients – over the short-term gains of growth hacking.
With the right customer data, customer lifetime value (CLV) helps you better direct marketing resources and shift your goals from short-sighted quarterly profits to long-term customer relationships that are likely to produce even greater profits.
Netflix: The Master of Customer Lifetime Value
Before it became a streaming entertainment giant, Netflix’s bread and butter were DVD rentals, which enabled it to gain a lot of customer data and build a customer lifetime value strategy based on it, explains online marketer Neil Patel. For example, letting customers create a queue of movies they’d like delivered to them enabled Netflix to continually engage clients. Customers who were engaged and had a list of movies were more likely to keep their subscription than customers who didn’t create a queue. With its customer data, Netflix could target its marketing to long-term subscribers, boosting their customer lifetime value.
In years past, Patel says, users would typically subscribe to Netflix for about 25 months. When the subscription fee was $11.65 a month, a customer’s lifetime value was $291.25. Based on this lifetime value, for example, Netflix could still invest heavily in marketing to a customer, say $150, because while in the short term Netflix didn’t make money, in the long term it profited.
Customer lifetime value means taking a longer view of profitability: investing in the longtime, frequent clients who may not immediately boost profits but will in the years ahead. First party data is key. You know more about your customers than anybody else. Use your customer data to customize a client experience tailored to your industry, products or services.
“If you don’t have some type of lifetime value calculation, even at a broad level,” says digital marketer George Popstefanov, “it will soon be impossible to reach the customers that matter most to your business.”
How Can I Grow My Customer Lifetime Value?
Optimizing customer lifetime value requires unorthodox thinking. But as Michael Schrage explains in the Harvard Business Review, customers should be viewed as value-creating partners rather than just value-creation targets.
Customers don’t bring value simply by spending lots of money on your products or services, Schrage says. Customers must be nurtured so they become avid followers. For example, what are you doing so your customers:
- Follow and promote you on social media?
- Refer their family and friends to you?
- Collaborate with you?
- Share their data with you?
- Provide positive reviews of your products or services?
- Are first in line for your new products?
Customer lifetime value is both definable and boundless. When you ask yourself these questions and how you seek to boost customer lifetime value in ways that meet the distinct and unique needs of your business, industry, and clientele, there is no perfect blueprint or right answer.
Partnering with an experienced digital marketing firm like National Positions, however, is the first step in answering these questions in ways that will boost your customers – and your business.
Why Should I Invest in Customer Lifetime Value?
Looking beyond today’s profits and focusing on our customer lifetime value provides a different perspective as we build our digital marketing strategies. How we market to, acquire, nurture, inform, and retain our clients all become part of our long-term strategy.
“Taking CLV into account can shift how you think about customer acquisition,” according to Custora. “Rather than thinking about how you can acquire a lot of customers and how cheaply you can do so, CLV helps you think about how to optimize your acquisition spending for maximum value rather than minimum cost.”
You find ways to learn more about your long-time, frequent customers to create marketing campaigns that maintain their businesses. And by keeping an eye on long-term growth, rather than relying on one-time or occasional prospects, your business will be much more prosperous in the long-run.
While it’s not necessarily intuitive, customer lifetime value “assures future customer profitability is top of mind,” Schrage says.
Isn’t it time you nurtured your customers like they are family and friends? Well you’ve always been doing that, right? But customer lifetime value helps you do it with unmatched precision.
Are you ready to optimize your customer lifetime value for the most effective digital marketing campaigns? National Positions has got you covered. Let’s get started!
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