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Ten Reasons Why You Must Track Lifetime Value

Oct 26, 2007
Attracting new customers costs more than retaining customers or bringing a past customer back into your lifecycle. So once you have your customers, you can't afford to let them leave without doing everything in your power to increase their lifetime with you.

Knowing your average lifetime value does 10 great things for your business:

1. It allows you to determine your customer acquisition cost. By knowing exactly how much each customer is worth to you, you can afford to lose a little on the front end to gain on the back end.

2. You realize that your customers represent a stream of revenue rather than a one-time purchase, so you can develop a marketing plan tailored to those who have shown an interest in buying from you. This prevents you from the endless struggle of having to acquire new customers in order to succeed. Work on keeping your current customers happy while you acquire new customers.

3. You have a better understanding of who to target so your marketing dollars give you a greater return on investment.

4. You can develop a marketing budget aimed at retaining customers and know how much you can spend to remain profitable.

5. You can more accurately figure your return on investment for each marketing campaign.

6. You can determine how profitable each customer is to you, not just averages across the board.

7. Before you spend money on an ad, you can calculate whether or not it will be profitable in the long run even if it does cost a bit in the short term.

8. You can set different budgets as you target different segments.

9. You can track recency, friction and latency so you know when a customer is about to not be a customer anymore. The best times to sell to a customer is when they are buying a lot from you or not buying at all. Create different campaigns for each scenario.

10. This helps you see the true value of a customer even if they are just buying from you for the first time. Don't think of them as worth just that first $19 sale. As long as you do your job right, they should remain with you and be worth much more than that original sale.

Once you have your lifetime value, you can focus on increasing the lifetime, increasing the amount of money your customers spend on each purchase (it should be getting progressively higher as they move through your "funnel") and decreasing the latency period.

Decreasing the latency period is important because your most recent customers are the customers who are most valuable to you. The best way to keep your customers recent is to have a variety of products to offer and keep your offers in front of your customers at all times.

So when you drive traffic to your site, you should be doing so with the lifetime value in mind. Each customer who buys from you is worth more to you than the price of that first sale.

But that first sale is critical. If you don't know how to convert your traffic, your lifetime value won't be hard to figure out because it will be nonexistent.
About the Author
Glen Hopkins specializes in teaching struggling entrepreneurs how to turn their small Online businesses into thriving money machines all while working less and earning more. To get more information, including Free Reports, Videos and CDs, visit: http://www.GlenHopkins.name
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