The Most Valuable Marketing Metric - Customer Lifetime Value
There is only one meaningful marketing metric. Nothing else matters. Truly.
The most valuable marketing metric - and, overall business metric - is Customer Lifetime Value (CLV). Some marketers refer to CLV as Lifetime Value (LTV), which might give away their background. Followers of Pete Fader's marketing science methods from the Wharton School of Business tend to say CLV.
Here are six reasons why CLV is the only metric that matters.
1. CLV is predictive. Today's properly calculated CLV models are highly predictive. We no longer use the antiquated methods of aggregate CLV. Instead each customer's curve of future purchase behavior can be calculated, sometimes in as little as a few days or weeks, with startling accuracy.
2. CLV describes your business. Healthy or unhealthy, it's all there in the numbers. Are you acquiring customers like crazy, but not retaining them? Are you retaining customers but watching them dwindle over time? Are you hammering the high number of "one-and-done" customers in hopes of reigniting their interest? It's all there in CLV.
3. CLV classifies your customers. Not all customers are created equally. Some produce higher value than others. Some have more future potential than others. If you don't know who is a good customer and who is a bad customer then you cannot target, personalize, or reliably build your business.
4. CLV reveals the values of your business. Adding up all those individual customer values reveals the total equity of your customer base. If customers are leaving, then CLV is your canary in the coal mine. Nothing else matters. Not your distribution, not your pricing, not your brand equity. All those items assist the core key metric of CLV. Focus on CLV first.
5. CLV changes all other metrics. Once you know who is a good customer and who is not, the basis of all your other metrics should change accordingly. Re-frame paid search by CLV and you'll likely save millions. Re-frame surveys, product improvements, and customer service by CLV and your business will generate better insights faster with more financial impact.
6. CLV creates massive competitive advantage. In some industries, there's a war going on for good customers that sustain profitability (retail apocalypse, anyone?). A singular focus on CLV not only highlights who the good customers are, but also informs qualitative discussions that will reveal where new pockets of value sit. This helps CLV leaders build long-term, valuable relationships with the best customers by being of service while the competition is still treating all customers the same.
About the Author
Allison Hartsoe is CEO of Ambition Data, a consultancy focused on customer-centric transformation. She's passionate about helping marketing leaders be more customer-centric and apply CLV to their business.
Allison is also host of the Customer Equity Accelerator podcast and founder of the Customer Centricity Conference, which she calls "a no BS zone where leaders share insights and we run live decision-making game simulations." (MKTG insight is a media partner of this year's conference, May 17-18, 2018 at Wharton San Francisco.)