By: Tom Murray | Managing Director
In one of our previous posts, we talked about what customer lifetime value (LTV) is, and how to calculate it. But after you have the number, now what? How can you act on the findings? Here are five ways you can use your LTV analysis to guide your decision making.
1. Finding Profitable Customer Segments:
When running an LTV analysis, it will likely uncover different customer segments, similar to the Blue Apron example shared in our previous blog post. Typical segments you will likely find are:
a) Champions: Frequent, high value buyers that keep coming back for more
b) Potential Loyalist: Recent customers that have also repurchased
c) New Customers: Bought recently, still in the consideration phase for repurchase
d) Needs Attention: above average frequency & monetary value
e) Dormant: low frequency and recency of purchase
By finding out which users fall into each group, you can start to do some audience segmentation to target these groups with specific messaging. For example, you might want to send champions exclusive access to the new collections since they need to have all of your products, or you can send them a “refer a friend” discount, where they can get dollars to use towards a future purchase in exchange for referring a friend. Dormant customers would need a different message, perhaps a discount to draw them back in. New customers are still deciding what to do, so sending them a personalized thank you note from the founder + some insider content could help them purchase again.
Once these segments are defined, you can load in these audiences into Facebook, Google, etc to help the platforms find similar people who look like your customers to help you find more of them. The better quality seed lists you can provide to the platforms, the more likely they will be able to find similar potential users.
2. Should We Stop Promoting to Certain Customers?
When customers are not profitable, it can sometimes make sense to actually no longer retain them as a customer. Some customers unfortunately are not worth servicing if they become a nuisance (for example if they constantly return items, harming your profit margins). Identifying these problem customers could help you save money by no longer trying to chase them down to purchase again.
3. Reset Your New Customer Acquisition Cost:
Whenever we have run an LTV analysis for a client, the client has been surprised at the numbers as typically we’ve found they either vastly overestimate or vastly underestimate the LTV of their users. For those that have underestimated their LTVs, this opens up expansion opportunities, as they can actually pay more to acquire users. On the other side of the coin, however, are the businesses that thought their customers were worth say $100, but they were really only worth $25. We’ve seen that these businesses have had to re-think their business model, and even the products they offer and re-enter the market with a new offering.
4. Prioritize Your Top Customers:
The largest companies in the world prioritize their customers based on LTV. For example, AT&T customer service teams can actually see customer data in terms of how long they have been with AT&T, their plan details, and the LTV of the customer. Those with higher LTVs will likely be brought to the top of the list to keep them happy, while those that are worth less to the company will be deprioritized. When you have a finite number of resources, these decisions can be crucial to ensure you keep your loyal customers happy.
5. Finding Out What Else Your Customers Buy:
By knowing the LTV of specific segments, you can start to understand what they are also likely to buy. This can guide optimized retargeting strategies by selling customer segment A to new product B, instead of just sending them product A over and over again. One brand we worked with found that users that crossed over into a second, different line of products were worth 7X more than users who only bought one line. This enabled a simple retargeting campaign that allowed us to find users of product line A and send them product line B, and vice versa, allowing us to increase the LTV of our existing customers substantially.
