Customer Lifetime Value

Customer Lifetime Value: A Marathon, Not A Sprint.

Gee Ranasinha Marketing 3 Comments

Few businesses really understand how crucial Customer Lifetime Value is whenever they acquire – or lose – a customer.

Expensive (and wasteful) advertising. Tradeshows. Social media marketing. Search Engine Optimization. Landing Pages. A/B Testing. The list goes on.

The lengths – and costs – that companies go to in order to attract new customers is part and parcel of business. But what about existing customers? How much do companies value customers that have already purchased from them? If more companies realized exactly how much existing customers contributed to the business, maybe they’d treat them better.

There are two numbers that every business needs to acquaint themselves with:

  • The average cost in acquiring a new customer;
  • How much, on average, that customer is worth to the company over the course of the relationship.

The Importance Of Customer Lifetime Value

Manufacturers of razors, inkjet printers and video games consoles – amongst others – understand the importance of calculating Customer Lifetime Value. How much business, on average, that customer is likely to spend over the course of the time that they’re using your product or service.

Whether it’s a five-blade with dual lubrication strips, extended-gamut inkjet cartridges or New Super Mario Bros. 12, they know that selling the razor/printer/console cheaply (or even at a loss) is offset by the “consumables” that users subsequently buy. That’s why Gillette are happy to sell a Fusion ProGlide razor for around ten bucks, since a pack of eight replacement ProGlide blades will cost you around $30.

Customer Delight Means Customer Retention

The best companies aim at delighting their customers before, during and after the buying process. As a result, unless they screw-up royally, the majority of their customers stay loyal.

Add the internet to the mix and customer acquisition – as well as customer retention – becomes a lot broader as well as a deeper for a business that’s willing to do the work.

What do I mean?

Well, companies such NetFlix or Hulu are much more likely to have a higher Customer Lifetime Value than the video rental store on the High Street (assuming that it’s still in business). In the old, publisher-controlled model, creatives such as authors or musicians made pennies on the sale of each book or CD. Today, they can self-publish directly to their most loyal fans, and make tens of dollars (or more) on each sale.

Customer Disaster Means Continual Funnel-Filling

Of course, there’s also the other side to the coin. The companies that don’t get it.

The companies that spend time, resources, and efforts on making as big as noise as they can to get strangers to notice them. Then, once they’ve been granted a piece of attention, they waste the opportunity by putting everything they’ve got into a single customer transaction. They’re myopic, only doing what it takes to get the sale today, rather than 100 sales over the course of a month, a year, or even a decade. As a result, they’re compelled to spend their time continually looking to fill the sales funnel with new prospects.

Their model is numbers-based: hit enough of an audience, and a few will engage. It’s the sales process of yesterday’s door-to-door salesperson, applied today. However such a relationship has no lasting or recurring value, since the customers’ ‘permission token’ has either been expelled – or revoked.

About the Author
Avatar for Gee Ranasinha

Gee Ranasinha

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After founding a successful media production firm, Gee became worldwide director of marketing for a European software company. As well as CEO of KEXINO he's an author, lecturer, husband, and father; and one hell of a nice bloke. He lives in a world of his own in Strasbourg, France, tolerated by his wife and young son. Find out more about Gee at kexino.com/gee-ranasinha.



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Comments 3

  1. Avatar for Gee Ranasinha

    Loyal, repeat customers are what carry your business through from day to day. Yes, every business needs to grow, but those repeat customers are the ones that keep your doors open long enough for everyone else to find you. Their customer experience can’t degrade over time as you’re off looking for the next big thing.

    1. Avatar for Gee Ranasinha

      Well said. It’s too easy to focus company attention on The Next Big Thing, when companies could better nurture existing customer needs.

      Thanks for taking the time to leave a comment.

  2. Avatar for Gee Ranasinha

    CLV is key. Losing money up front is ok, as long as ultimately profitability comes down the road. However, that being said, its the job of the marketing dept to provide metrics in a strategic plan up front to assure shareholders and senior leadership that profits will come, but first you have to weather the storm

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