March 10, 2021
If you’re not measuring and tracking customer lifetime value, or LTV, in a meaningful way, you’ll never understand how your company treats its customers. Think of LTV as a referendum on the quality of the customer relationship, not the amount of revenue a company can squeeze out of someone over their lifetime.
Going further, a relationship is forged over time through many contextual emotional experiences, both good and bad. This makes LTV really about the customer experience. LTV cuts across a company’s customer-facing departments — marketing, sales, customer success, customer service, product development — to provide a snapshot of the overall customer experience.
Such insight is incredibly valuable to a company, which has led to renewed interest in LTV in the C-suite. Digging deeper into the LTV calculation, executives gain a better idea about where to allocate resources and what to focus on. LTV used to be solely a marketing metric, not anymore.
Our latest report, “Humanizing + Analyzing Relationships To Drive Revenue, Retention And Returns,” found that CEOs (53%), heads of sales (49%) and line-of-business leaders (44%) leverage LTV to drive strategic decisions, mostly on a quarterly or even monthly basis.
Now for the bad news: Marketers struggle to define, measure and track LTV. The vast majority of marketers rate the ratio of the cost to acquire customers to LTV as average at best. Marketers aren’t effective enough at segmenting and targeting customer sets with the most potential for long-term value.
In the end, they don’t know how customer experiences impact the customer relationship.
The problem lies in the traditional way of looking at LTV. At a basic level, LTV is a prediction of the amount of revenue, or net profit depending on the calculation, to be gained throughout the future relationship with a customer. It’s the monetary value of a customer relationship.
But the prediction only comes true if the relationship is a strong one. Again, LTV is about relationships, not revenue. Marketers should re-think LTV and turn the tables on the “value” part of the acronym. That is, the emphasis on “value” is not how much revenue the company reaps, rather what the customer is getting out of the relationship.
This is best summed up by Brett Townsend, head of North America insights at Electrolux, in our report. When companies try to maximize revenue at every possible consumer touchpoint, he says, customers see right though it and get turned off.
“LTV should be about making the customer experience so great that they happily, and even excitingly, come back to you the next time they want to make a purchase or engage with your brand,” Townsend says.
So how does a CMO begin to re-think LTV in a practical way?
This is a challenging task that requires — you guessed it! — buy-in from all the top executives in customer-facing departments and other operations. Everyone needs to understand the role they play in the overall customer experience and that LTV is the metric to watch.
For more on defining, measuring and tracking LTV, as well as segmenting and targeting customers for long-term relationships, make sure to download our report.
Tom Kaneshige is the Chief Content Officer at the CMO Council. He creates all forms of digital thought leadership content that helps growth and revenue officers, line of business leaders, and chief marketers succeed in their rapidly evolving roles. You can reach him at firstname.lastname@example.org.
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