How To Use Customer Lifetime Value To Identify New Sales Opportunities
Utilising customer information and personas to build stronger client relationships seems like a fairly logical step for most companies in an era when data is driving more and more business activity. However, a surprising proportion of companies fail to take advantage of their capability to leverage data and technology to better target their best customers. According to an Econsultancy report based on a survey of more than 1,000 digital marketers and ecommerce professionals, only 40% of these respondents say they understand their customer journeys and have adapted their channel mix accordingly.
In short, many companies are failing to utilise data to build stronger bonds with their existing customers. In fact, a significant proportion of businesses are failing to utilise CRM software and other technology to track Customer Lifetime Value (CLV) to indentify who their most profitable customers are!
The Econsultancy research showed that 22% of digital professionals surveyed did not do any relationship marketing, with 13% citing lack of technology being the reason for this. The research highlights that this failure to invest in relationships is largely because many companies do not appreciate the financial value their existing customers, instead many are mesmerized by the thought of new revenue acquisition. Yet, failing to focus on profitable customers limits your ability to upsell and cross-sell.
Using CLV to guide retention activities towards the most profitable customers can impact margin in two ways. First it helps your company to target and retain clients who are contributing higher margins, and according to the UK’s Chartered Institute of Marketing, it costs between four and 10 times more to acquire a new customer than it costs to retain one, so by retaining your bet, you are making more money! Indeed, the Econsultancy research shows that 70% of the respondents confirm that it is less expensive to retain a customer than to acquire a new one, while 49% say that, pound for pound, they achieve better ROI by investing in relationship marketing as opposed to acquisition marketing. Secondly, it can help you indentify customers who potentially cost more money to service and retain, than produce in revenues, thereby being a drain on company profits, and should be removed as a customer.
Finally CLV data is central to relationship marketing and building the personas necessary to support it. Without a doubt, it is difficult to know what marketing channels to use, how to set pricing or what messaging to use until you have a clear idea of who your most profitable customers are, what characteristics they share and what their preferred customer journey is.
Therefore calculating CLV is vital and only possible if you have access to your customer data at your fingertips. Using the CLV calculations and your customer data you can identify the e projected profit that you expect to make from a customer during the full period of the company’s relationship with that client, taking into account not only the anticipated revenue, but the full cost to maintain the customer’s loyalty. Calculating CLV involves looking at the projected revenue minus the cost of maintaining an individual customer over the lifetime of the relationship (it can be taken in total or broken down by marketing and sales costs). It is important to note that CLV is not fixed in stone and how it is calculated varies from company to company. You can use this data to refine your engagement strategies and improve initiatives that extend the lifetime value of your existing customers.
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Joining Maximizer Software in May 2012, Anita lends her expertise to the delivery of all marketing communications and PR. With a Diploma in Direct Marketing and more than 14 years marketing and commercial experience, Anita is responsible for the strategic planning and implementation of a diverse portfolio of marketing tactics, specialising in...