Entrepreneurs and business owners are sure: that every customer is important if he makes a purchase at least once. But the question arises, will the cost of attracting them pay off with just one order? How exactly can you optimize the system for attracting potential customers so that investments are justified?
LTV metrics will help to answer these questions. It will clearly show which customer segment brings the most profit, how beneficial it is for the company to use these or those channels to attract customers, and much more. After all, even if the client has placed an order, there is a possibility that it will bring the business only losses. To find out for sure, you need to analyze the indicators by doing the necessary calculations.
What Is LTV?
LTV is the entire profit received from a particular customer, for the entire period of your interaction with him.
There are several formulas for calculating LTV. The simplest and most straightforward of them:
LTV = revenue from client – costs to attract and retain him
LTV is a great benchmark for improving company performance, especially when your business model involves multiple customer purchases: online shopping, creating a 22Bet login and making a deposit to the account, food delivery, mobile apps with subscriptions, and so on.
The metric will help determine whether the investment in customer acquisition and retention is paying off. When calculations and analysis provide reliable parameters for one customer, you can objectively predict the behavior of others in the segment.
Knowing LTV, we can most effectively allocate budget for expanding the audience, attracting new customers or their retention. After all, it makes sense to invest more in those who will stay with you long term.
Why Count LTV?
What is the benefit of such an analysis? If the LTV is calculated correctly, the metric can reveal a number of interesting patterns. Here are some of them:
- Metrics will allow companies to find the most loyal customers, to develop special strategies for them to promote products, services. These are customers who don’t buy so much, but often, make single large orders.
- With LTV, you can define, on which clients it’s unnecessary to waste the resources. Let’s say there are two customers. Customer A has made one purchase of $500, and customer B buys every month with an average check of $350. Judging by one month, customer A has a higher result, but the total profit from customer B will be significantly higher. Already in a year, he will surpass customer A by several times.
- It’s important to personalize offers, finding out in advance about the behavior of customers, potential clients. It’s necessary to understand when repeat orders are made, which specific purchases more often make the first ones. When you know the exact results, you can begin to develop an effective strategy: it will push the client to action.
- It’s imperative to determine which promotion and advertising channels are able to “bring in” the most valuable customers, to engage and retain them. The budget allocated for development is already optimized for effective channels. This methodology is focused on the long-term perspective of fruitful interaction.
- It’s possible to emphasize on already existing clients, to provide their involvement and retention. The metric will predict how much exactly each customer can spend in the foreseeable future if his interest remains at the same level or grows.
- Metric helps to clarify the amount of budget that is reasonable to attract and retain customers of different streams. It’s difficult to objectively determine the reasonable boundaries of the advertising budget, if you don’t apply the system of LTV calculations.
Optimizing customer service plays a huge role. It’s important to predict at what exact moment there is a decrease in activity, when customers start to leave. This approach allows us to return the initial activity in time, to stimulate customers, to keep their interest.
One of the most effective tools for customer retention has been and remains email newsletters.
How to Increase LTV With Email Marketing?
Email marketing works to increase the customer lifecycle. Practical experience shows that newsletters have been and remain one of the most effective tools for increasing LTV. Here are some tips to help achieve goals:
- Launch a welcome letter series. This way you’ll introduce the customer to the company and can lead them to a purchase.
- Create personalized offers for different customer segments – this way you will increase customer loyalty.
- The frequency of purchases may well increase if you apply reminder tactics. If the product or service is ordered regularly, set up an autostore mailing to remind them of the purchase.
- If an item is in high demand, set up a notification to reduce its inventory in stock.
- Use cross-selling techniques. When a customer has ordered an item, you should send an email with an offer to buy the right accessories and consumables. It’s best to send such a message right after the purchase.
- Set up an auto-mailing with a list of items in an abandoned shopping cart. The potential customer may have looked at items on multiple sites, and a timely email will solve the case in your company’s favor.
- Interact with the customer after the purchase is made. Find out if he is satisfied with everything, ask him to write a review. So you show that you care.
The lifetime value of the customer can be defined as a combination of factors: the average receipt, the frequency of purchases and the time of work with the company. This is one of the most important indicators in marketing, which helps to make the interaction with the customer more effective.