Understanding the Lifetime Value of Your Customers
Posted by Humane Design on October 7th, 2022
Sales are important, but your business may soon realize the importance of your customers. While sales and marketing are important, don't forget that customers drive your business's revenue. Knowing or not knowing how much it costs your business to acquire a new customer can result in low profits despite healthy income. Maximize your profit per customer by understanding your customer's lifetime value. Read the complete article to know how to improve clv
Marketing through mass advertising, article distribution, search engine optimization and social media-based marketing work together to reach a large audience of potential customers. Understanding your prospects and customers is the key to developing highly engaged customers who make frequent purchases and generate ongoing revenue, but require little maintenance. While your business may not profit from a customer's initial purchase, your business can earn a significant margin on future transactions. Understanding and measuring the key values throughout your customer's expected relationship with your company will help you make decisions to pursue, reward or even hire customers.
There are two key metrics that determine a customer's value to your business:
1. Cost of acquiring a new customer
2. Lifetime value
Make the most of your marketing by understanding the cost of acquiring a new customer
You spend money no matter how you promote your products or services. Whether using SEO services, article writers, buying software or doing your own thing to generate backlinks to your website, everything comes at a cost, whether in money or your time.
The cost of acquiring a new customer for a given marketing effort is your marketing campaign's cost per customer divided by the response rate, or:
Campaign cost per lead/response rate = cost to new customers
Your campaign cost is the cost of a marketing campaign divided by the estimated number of people likely to see your ad.
Response rate is the percentage of prospects who directly respond to your marketing campaign. Knowing the response rate specific to your industry is important; However, for most web-based campaigns, a 1% response rate is reasonable.
Assuming that your business runs a marketing campaign that costs 0, reaches 1,000 people, and has an estimated 1% response rate, the cost of each new customer is:
Campaign cost per prospect = 250 / 1,000 = 0.25
Lead Cost = Campaign Cost Per Lead / Response Rate = 0.25 / 0.01 =
So the cost for this campaign is for each new customer. Increasing the response rate by 2% reduces the cost per customer to just .50. Increasing the response rate to your campaign is the most cost-effective way to drastically reduce the cost of each new customer.
Understand Lifetime Value
Cumulative profit per customer is the lifetime value of the customer. For example, your business may lose revenue trying to convert a prospect into a customer, but repeated sales may generate a lot of revenue because marketing to existing customers costs far less than marketing to new customers. is effective. Assuming a 60% conversion rate and it only costs to reach 100 existing customers, each sale could cost your business only --content--.80!
To understand how to increase customer lifetime value, it's important to track your profitability per customer in the context of marketing campaigns. This understanding drives your product development efforts and marketing campaigns because you can estimate how long it will take for you to become profitable with a specific customer or customer type.
Here are some ways to maximize the lifetime value of your customers:
. Make sure your promotions deliver real value. Offer a report, test, score, or even a gift.
. Specify a price for the gift - make it clear that the giveaway has value, but that you are giving it away for free
. Reward customers with points, discounts, coupon codes or other incentives