Customer lifetime value (LTV) is one of the cornerstones of modern market research. It allows businesses and startups of any size to estimate their return on investment from valuable consumer groups before allocating limited resources. Leveraging LTV effectively, however, is far from easy. According to one 2018 study, 69% of businesses believe their organization could measure LTV more effectively.
On one hand, marketers have a metric everyone agrees is valuable, but an inability to leverage it effectively on the other. What’s driving this disconnect? In most cases, LTV itself isn’t the problem: the formulas are accurate, but companies struggle to focus on the most useful metrics. This is thanks to organizational barriers that silo information and restrict relevant departments from utilizing LTV’s value.
More from PostFunnel on LTV:
5 Short-Term Techniques For Cultivating Long-Term LTV
5 Ways Today’s Telecom Giants Use Marketing Automation to Drive LTV
Build Long-Term Relationships Using Customer LTV
Addressing these obstacles is relatively easy if you can identify the specific challenges in your path. Here are some fundamental strategies to help marketers overcome immediate obstacles and leverage LTV effectively.
Collect Relevant Data
One of the most common LTV errors occurs when a marketer fails to track all relevant data. Perhaps you neglected some particular metric relating to your user groups, such as net profit, acquisition costs, or retention rate. Another possibility is that your survey sample groups are too small to represent the average customer accurately. In either scenario, failing to track crucial data means your final LTV will be far from reliable.
In an age of widespread smartphone adoption, there are several channels to access actionable data. Loyalty and reward programs are often a promising touchpoint that encourages customers to engage with their favorite brands while generating LTV-adjacent data in the process. Alternatively, any rewarded advertising placement could offer in-depth surveys that gauge consumer interest in your brand.
Regardless of your approach, don’t overlook the benefits of wide-reaching data and market research. Many brands are turning to CRM solutions to manage entire customer relationships and analyze the impact of individual actions on LTV. While these tools are useful for unifying consumer data, they’re just tools. If you don’t maintain data access, LTV models and resources won’t tell entire story.
Segment Your Customers by Value
Measuring LTV-adjacent metrics is just one step in obtaining useful insights about your customers. Next, marketers must segment users in a way that highlights their most valuable consumer groups. Unfortunately, the processes for creating these segments aren’t universal. Depending on the classification framework you choose, customers within each segment could vary in terms of the value they offer the brand.
During early research into the concept of LTV, Hyunseok Hwang identified a framework for adequately segmenting customers into the right segmentation model. “Customer value is classified into three categories: current value, potential value, and customer loyalty.” These three perspectives highlight the present and future value of a given customer, along with their likelihood to engage with your brand.
Use the Right LTV Formula
Even if you have the correct data and measurements, using the wrong LTV formula can procure unhelpful results. Marketers can apply a range of tweaked LTV models depending on their industry or the number of existing customers you have. Unfortunately, many startups aren’t always familiar with these nuances and generate flawed LTV metrics that don’t reflect their needs.
The most successful LTV formulas, for example, usually account for the difference between nominal and discount pricing. After all, if you are trying to attract new customers to your brand, discounts are the most reliable tool at a sales team’s disposal. Unfortunately, it’s incredibly common to see brands model the LTV of discount customers with standard customers, scaling the projected revenue above reasonable expectations. Adjusting your models to account for each segment enhances LTV accuracy and gives team leaders a better perspective of their expectations.
And that’s just price. Your models might vary when you’re analyzing the LTC of existing and potential customers, mainly because existing customers won’t have future acquisition costs. Simply segmenting your customers into user groups won’t help if your models don’t account for the nuances of how each group provides revenue.
Improve the customer experience
Once you have accurate measurements, effective customer segmentation, and highly optimized LTV formulas, there’s still one crucial ingredient required: a positive customer experience. If you have personalized data related to market groups but don’t adjust your customer-facing strategies to match, they ultimately won’t feel engaged.
According to research from Econsultancy, 64% of company respondents claim that improved customer experience will maximize LTV, higher than leveraging customer data at 52%. This enhanced experience can take many forms, including:
- Personalized rewards
- Increasing the frequency of engaging customer interactions
- Sharing a single customer profile across departments
Each industry will face unique challenges when enhancing customer lifetime value. Some may struggle to find the most effective way to personalize customer experiences, while others will need to refine their data-collection processes. Whatever your approach, remember that LTV is about the long game. By taking the time to build the right LTV strategy, it will be far easier to secure a customer for an entire lifetime.