In Five Ways Ecommerce Sites Can Collect Subscribers, we discussed the importance of building your subscriber list to increase customer lifetime value (CLTV). If you can build a big enough list, you’ll have more grist for your marketing mill which improves your ability to maximize CLTV. According to Geoff Fripp, the founder of the Market Segmentation Study Guide, the customer lifetime value is typically “calculated as a single dollar amount.” Finding out this information out can be a boon to both your CFO and CMO, helping to set budgets for your operations and determine revenue goals.
Discovering your average CLTV means figuring out how much you are spending to acquire each customer and how much revenue is generated by each acquired customer. In the digital world, it’s important to determine not just total CLTV for each customer, but to do so for each customer segment like organic search sessions, PPC, email and social. Segmenting CLTV by channel allows you to allocate resources more efficiently.
This infographic from KISSmetrics shows you how to calculate their CLTV using a variety of calculations. It also shows how to use your findings to focus on “good customers” who may cost more to acquire but will generate more profit down the road.
To me, the most fascinating portion of this infographic tells of the influential role of customer service in improving CLTV. Consider this quotation from the infogrpahic: “Research has found that a 5% [sic] increase in customer retention can increase profits by 25% [sic] to 95%[sic]. The same study found that it costs six to seven times more to gain a new customer than to keep an existing one.” Clearly, improving your customers’ experiences aren’t just an emotional investment, but a financial one as well.
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Source: How To Calculate Lifetime Value
