Marketers have no shortage of metrics they can use to gauge their ability to attract, convert, and retain customers. But one of the most meaningful KPIs to measure marketing success is often overlooked: customer lifetime value.
Read on to learn what customer lifetime value is, how it can impact your growth, and how you can develop digital marketing campaigns to move the needle on CLV.
What is Customer Lifetime Value—and Why Does it Matter Right Now?
Your Customer Lifetime Value (CLV) is a measure of the total profit you can expect to generate from the average customer throughout the duration of your relationship. Calculating your CLV gives you insight into which types of customers are the most valuable to your business, helps you identify where to focus your marketing efforts for maximum return, and can serve as a warning sign for potential problems—like communication gaps, poorly targeted acquisition efforts, or rough spots along your customer journey.
Right now, all of these areas are incredibly important to both consumer brands and B2B companies. As we emerge from a global pandemic, deal with record inflation, and face economic volatility, having a loyal base of repeat customers provides some breathing room for weathering uncertain times.
This is because repeat customers tend to spend up to seven times more per visit and buy more frequently. And acquiring a new customer is far more expensive than retaining an existing customer—estimates vary by industry but range from five to 25 times more.
How to Calculate Your Customer Lifetime Value
There are several different approaches to calculating CLV, but at its simplest, the equation looks like this:
Customer revenue per year
The number of years they remain a customer
The cost of acquiring the customer
Depending on your company’s analytics maturity, you can get more advanced in calculating and predicting your customer lifetime value. You can use historic data to simply look backward, use that same data to make predictions about the future, and even leverage machine learning to automate predictions and recommendations for impacting CLV. You can incorporate more complex factors like gross margin or operational expenses, or use more detailed metrics like average spend per transaction versus annual spend per customer.
But for simplicity’s sake, we’ll use this basic definition of CLV to focus on how to drive improvements by rallying teams and digital marketing campaigns around this key metric.
The Challenges of Measuring CLV
Before you get started impacting CLV, you have to be able to secure a baseline and track performance over time. And even with a simple approach, there are a few challenges to measuring customer lifetime value you’ll need to overcome.
01 Gain Access to Consistent Data
Without reliable analytics and tracking, it can be hard to get access to information like annual spend per customer or customer acquisition cost. And since reporting will come from different departments (like finance, operations, customer experience, or marketing), you’ll need to make sure your data is consistent across teams.
Zero-party data is the most accurate kind of data you can have because it comes directly from the customer. Finding ways to collect zero-party data is essential because third-party data sources are drying up as platforms like Google Chrome and Apple iOS phase out third-party cookies. One of the best ways to collect zero-party data is by offering customers an incentive to give it to you.
02 Be Able to Drill Down into Detailed Results
The power of CLV is that it can help you analyze, understand, and improve your customer experience. Make sure you have the ability to not just look at a high-level metric, but dive deep into how CLV varies across segments of customers.
Once you have the right metrics, tools like customer experience management platforms and CRMs can track and report on your CLV over time. As long as your data is consistent and explorable, even an imprecise measurement of customer lifetime value can help you prioritize initiatives that will drive improvement—and measure how your efforts are helping grow the business.
How CLV Impacts Business Growth
Given that customer lifetime value is a combined measure of purchase rates, retention, and acquisition costs, it influences cross-functional outcomes across your organization. Here are a few ways CLV impacts business growth, and how marketing specifically can influence this key performance metric:
The ultimate goal of focusing on customer lifetime value is to improve the overall profitability of your business. And when you compare the CLV of certain customer segments against one another, you’ll learn which ones are more or less profitable.
With this understanding of who your most valuable customers are, you can choose to approach maximizing profitability from two different angles:
- Acquire more of your most profitable customers by focusing your marketing, product development, and retention on this valuable group.
- Work to increase the engagement and average spend of your less profitable customers by focusing on improving the customer experience, driving additional or bigger purchases, or reducing marketing and acquisition costs.
Improving Customer Retention and Satisfaction
Even in its most complex equations, the length of your average customer relationship is a huge factor in calculating customer lifetime value. This means that improving CLV usually means improving customer retention strategies—because the longer you have a relationship with a customer, the higher their lifetime value.
And since retention is driven by customer satisfaction, driving CLV usually involves improving overall service as well as marketing activities like collecting feedback, mapping your customer journey, and streamlining communication across the customer lifecycle.
Driving Repeat Sales
If a customer remains your customer for a decade, but only makes a purchase once per year, their CLV may be lower than a more frequent shopper who only sticks around for five years. So as you slice and dice your CLV data, you can identify opportunities to increase the number of purchases customers make over the course of their relationship.
Giving customers a personalized offer based on their identity is a great way to drive repeat sales. When you give an exclusive offer to consumer communities like college students, teachers, and the military, they feel rewarded for who they are. This creates an emotional connection with your brand that makes customers purchase from you more frequently and promote your company throughout their networks.
Abandoned cart email sequences, re-engagement campaigns, and strategic discounts are other examples of how digital marketing can influence repeat sales and CLV.
Understanding Your Ideal Customers
When you’re measuring CLV and notice a drop in customer retention—especially if service levels haven’t changed—that can be a signal that something’s wrong with your customer acquisition strategy. For example, if you’ve recently launched a blanket discount program that provides low pricing to a wide audience, you may be attracting bargain hunters who are motivated to buy once and bounce. These kinds of price-motivated customers are more interested in a good deal than building loyalty over time, and their higher churn rate can make a swift impact on your CLV.
By understanding your ideal audience, marketers can focus their acquisition strategy on these high-value customers through personalized outreach, referral programs, and other highly targeted campaigns.
Identify Communication Gaps
When you start to analyze which customer segments have lower CLV, you can identify potential risks and rough spots along your customer journey—and make focused improvements.
For example, if customers you acquire through a certain marketing channel tend to have a lower CLV—even if you know your targeting and acquisition costs are locked in—you can dig in and see what might be the cause. Communication gaps during onboarding, a lack of post-purchase engagement, or neglected upsell opportunities may be to blame.
How to Think About One-Time Customers
Analyzing your CLV across customer segments will allow you to identify one-time customers: those who make a purchase and never return or buy again. While these customers shouldn’t be forgotten or dismissed, you do want to focus your efforts on turning them into repeat buyers. Building re-engagement campaigns with additional purchase recommendations, collecting feedback, and offering strategic discounts are all marketing activities that can help one-time shoppers become loyal customers.
8 Ways to Increase Your Customer Lifetime Value with Digital Marketing Campaigns
The lifetime value of a customer depends on service levels, product quality, and dozens of individual touchpoints that marketing alone can’t address. But you can still make a meaningful impact on CLV by improving communications, optimizing acquisition strategies, and building brand loyalty through positive engagement.
Here are eight proven tactics to increase CLV through digital marketing campaigns.
01 Personalize Campaigns with Zero-Party Data
Research shows that 71% of consumers expect companies to deliver personalized experiences—providing relevant content and messaging at the right time. But at the same time, 86% of Americans say that data privacy is a growing concern. So how do marketers provide personalized experiences when customers are growing more reluctant to share personal information?
One approach is to use zero-party data, which is information that customers offer up freely in exchange for something of value, like a discount or perk. This highly accurate data can be used to build out consumer profiles, segment your audience, and engage customers with personalized campaigns that drive retention, purchase rates, and customer lifetime value.
02 Create Gated VIP Offers
Brands can collect zero-party data through identity marketing or by extending a gated VIP offer based on your customers’ profession or life stage. Special discounts for members of the military, students, teachers, or seniors are all examples of common identity marketing campaigns.
Using an identity verification platform like SheerID means customers share their personal information in exchange for a valuable discount. Brands can trust this zero-party data and use it to increase engagement with these consumer communities for years to come.
Identity marketing can improve customer lifetime value by:
- Lowering acquisition costs through powerful word-of-mouth: 96% of military members, 97% of students, and 98% of teachers will share an exclusive discount with others in their community.
- Building loyalty through positive emotional connections: When offered a personalized discount, 84% of teachers feel appreciated, 75% of students feel excited, and 66% of the military feel valued.
- Increasing repeat purchases: 83% of seniors and 61% of military members will shop more frequently with a brand that offers a personalized discount.
03 Engage with Cause Marketing
Nearly 80% of American consumers feel more connected to a purpose-driven brand, and millennial and Gen Z consumers in particular have increasingly high expectations for companies to address social problems. Cause marketing campaigns highlight how your brand supports the issues or communities your customers care about and can help build loyalty and affinity with your brand over time.
For example, shoe brand Rothy’s doubled down on its cause marketing during the pandemic by offering an exclusive discount to healthcare workers and donating 100,000 masks to frontline workers in need of PPE—all based on feedback and suggestions from its existing customer base. Rothy’s saw a 60% increase in its identity marketing program by adding healthcare workers and credits the offer and donation with increased loyalty.
04 Ask Customers What They Want to See
Taking a cue from Rothy’s playbook, you can impact customer lifetime value by simply asking your customers what they want from your brand. Use your email preferences center or customer surveys to engage with your audience and ask what kind of content, communications, and experiences they’d like to see.
Analyze their answers according to your CLV segments to focus on giving your most profitable customers more of what they want, or addressing any customer experience gaps with segments you want to improve.
05 Create Re-Engagement Campaigns
If you’re focused on improving CLV with at-risk groups, consider developing re-engagement campaigns to win back the interest and attention of customers who haven’t made a purchase or used your product in a while. Share new features or training for your SaaS product, recommend items relevant to what they’ve purchased in the past, or share a special promotion or discount that they’re eligible for.
06 Launch a Customer Loyalty Program
Reward your most valuable customers and increase repeat purchase rates across segments by building out a customer loyalty solution. Loyalty programs encourage repeat purchases by awarding points or perks like free shipping, giveaway items, or special discounts.
Naturally, loyalty programs are effective at increasing CLV by incentivizing repeat purchases, but they can also improve satisfaction and retention by making customers feel valued and appreciated. And, customer loyalty program members will usually share personal information in exchange for membership—providing more zero-party data you can use to personalize and improve your customer experience.
07 Collect Feedback with NPS or CSAT
Regularly collecting feedback about your brand from your customers can provide granular insights into how to improve satisfaction and retention. Popular systems like Net Promoter Score (NPS) are consistent and easily automated—just remember to follow up the standard How likely are you to recommend us to a friend or colleague? with an open-ended question about the reason for their rating. This allows you to gather more detailed feedback on where you’re doing well and how you can improve.
08 Avoid Problematic Acquisition Strategies
Blanket discounts can draw in bargain-hunting customers that may be a poor long-term fit for your brand. Broad, untargeted paid ad campaigns cast a wide—and expensive—net. Problematic acquisition strategies like these can lead to spikes in churn and acquisition costs and, as a result, cause your customer lifetime value to plummet.
The more you analyze your CLV, the better idea you’ll have of who to target for long-term loyalty and revenue growth. Invest in more strategic acquisition programs, like the gated VIP offers mentioned above. Or consider launching a referral program that incentivizes your happiest customers to refer friends or family they think will benefit from your product or service.
4 Companies that Saw Positive Change by Focusing on CLV
Curious to see these tactics come to life? Here are four brands that have made a meaningful impact on CLV by collecting zero-party data, delivering personalized experiences, and launching strategic acquisition campaigns.
Back Market Drives 30% Higher CLV with Student Discounts
Back Market provides high-quality, refurbished electronics and helps reduce e-waste—a mission that resonates with Gen Z. To engage them, Back Market launched an exclusive offer for college students in 2020. The identity marketing campaign brought in 300,000 verified students in its first year, and in 2021, Back Market saw a 5x increase in student orders during the back-to-school season.
The marketing team also began using the zero-party data they collected when verifying eligibility to create re-engagement campaigns—and as a result, students now have a 30% higher customer lifetime value than the brand’s global average.
ASICS Generates Higher CLV through a Loyalty Program
Athletic brand ASICS has built a powerful omnichannel engine of personalized marketing that improves customer lifetime value across key segments. For example, the company collects zero-party data by offering exclusive discounts for groups like first responders or members of the military. And members of the brand’s robust OneASICS loyalty program have “significantly higher” customer lifetime value than non-members.
TIDAL Raises Retention and Lowers CAC with Identity Marketing
Subscription music service TIDAL offers exclusive discounts to students, the military, and first responders, and the brand uses the zero-party data collected through verification to design personalized experiences. Thanks to the increased engagement and feelings of appreciation, subscribers who join through these specialty plans have higher retention rates than the average user.
Offering these exclusive discounts also drives earned media mentions and word-of-mouth referrals—lowering acquisition costs for these customer segments.
Gainful Improves Retention and Engagement through Zero-Party Data
Personalized fitness brand Gainful offers its customers nutritional supplements and one-on-one support with dietitians. The brand had little trouble attracting a younger demographic, but struggled with retention and repeat purchases—metrics showed that customers aged 18-23 made up nearly half of their non-active email base.
After launching a gated offer for students, the Gainful team was able to connect with this valuable customer segment and use the zero-party data they collected to create and deliver tailored content. As a result, the brand saw an 18% lift in first-month retention and the number of disengaged student-aged subscribers dropped from 49% to 11.5%.
Start Improving Your CLV This Month
Ready to make an impact on your customer lifetime value? One of the fastest ways to get started is through identity marketing. Learn how the SheerID team can help you get a personalized discount campaign up, running, and attracting loyal customers in as little as a week.