Calculate Your Customers’ Lifetime Value

Customer Lifetime Value (CLV) equals the estimated, finite amount of money a customer will spend with your company.  Putting it to use can help you decide how much you should spend on a marketing campaign.

To illustrate, let’s say you own a cleaners company and you have data showing your customers spend $100 a month over a 3 year period of time.  This means your CLV is $3,600 ($100 x 12 months x 3 years).

Depending on your allowable profit margins, you can now confidently set your marketing budget to not exceed the limits of an attractive ROI.  Say you determine that you would like to stay at 7%; this means your allowable cost for acquiring a new customer should not exceed $252.

Using Customer Lifetime Value

Let’s say you have the following information for your new email campaign:

·         You are paying your marketing company $102 to design and manage your email campaign.

·         You are sending to 230 subscribers

·         Email response rate is 0.9%

This means your estimated return will be 2 new customers (230 x .9% = 2.07).  These two new customers will bring in a total of $7,200 over the course of the next three years while still using less than your total allowable expense.  Now you can take this same formula and consider using it to expand your marketing efforts with the unused allowance.

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According to Econsultancy.com 47% of businesses today are unable to measure their social media campaign ROI.  How much would you say you make for every dollar you spend on your social media campaign?  According to the Direct Marketing Association, the only interactive marketing channel that drove more sales than social media’s $14.3 billion was email marketing.  If the Direct Marketing Association can do it with a team of mathematicians and troves of raw data from years of research, why is it that it is so hard to measure for the average business owner?  It is simply the lack of raw data, time set aside to evaluate and familiarity.  Business owners are at a loss of which measuring stick to use.

There are ways to try and funnel your social media efforts into a hard summed total.  However, there are far too many variables to add up.  For example, you may find someone first hears about you on a social site, clicks through to your shopping website to research only to return in person to buy.  In this instance there is no way of tying your social campaign to a hard sales number.  Instead, let’s consider 3 separate areas, that when consistently analyzed together, can give you a more capable measuring stick.

1.        Quantitative – track how many followers, friends, or likes to you receive each month as well as how many unique visits you receive and the bounce rate of those visits from your social media sites.  Bounce rate is the percentage of visits that were the person left from the same page, signifying low interest or relevance.

2.       Qualitative – read what is being said about your company and tally how many “likes” your campaign receives.  Also consider using services like Rapleaf or Adobe Online Marketing Suite to gain valuable insight on what your customers are saying about you.  You can also do a simple Google search to see what pops up on blogs and/or comments.

3.       ROI Metrics – track what you can back to your campaigns by tagging customers’ receipt of or delivery of a social campaign.  Use a software like salesforce, zoho, or a spreadsheet if nothing else.

Mesh these together and you’ll end up with a pretty good idea of how your efforts are going.  Track in a spreadsheet at each quarter and take time to make changes and/or tend to this aspect of your marketing efforts as you do your all other important aspects of your business.  Your cash register will be glad you did.

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