Metrics Series: 6 Ways Customer Lifetime Value Can Drive Email Marketing Strategy

 

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For 2021, Webbula is launching a series of blog posts about email marketing metrics. We have a variety of esteemed authors from the email industry lined up to participate. 

Previous articles you may have missed: 

  • Understanding and Leveraging the Power of Open and Click Reach Rates in Email Marketing by Jeanne Jennings. View that here.
  • Email as a Conversion Tool: 5 Metrics You Should Be Tracking by Tejas Pitkar. Read now.
  • Inactive Email Subscribers: Measure and Minimize Instead of Reactivating by Loren McDonald. Read it here. 
  • Click-to-Open Rates: The Best Measurement of Email Engagement by Betsy Grondy. Read it. 
  • Email Deliverability Guide: How to Interpret Delivery, Clicks, and Opens by Tom Blijleven. Read it.

Did you miss the discussion? You can rewatch it here! 


Metrics - Customer Lifetime Value 1

Email is often seen as a tool to send 1:1 messages to your audience & drive immediate business actions, such as purchases, sign-ups, etc. However, the most impactful benefits of a good email marketing strategy lie in its relationship-building opportunities that drive results across all stages of the customer lifecycle, from acquisition to retention.

While metrics like opens, clicks, and conversions (when they’re available) can be great success metrics at an email campaign level, when looking at a program or audience level, customer lifetime value (CLV) provides a better vision of long-term business impact. 

This is especially true when trying to quantify email programs that do not drive direct revenue for your business - such as a newsletter or a post-purchase thank you. We know these types of messages are important for retention, but if we’re not monitoring our audience’s CLV and only looking at opens and click trends, it’s hard to understand the channel’s true effectiveness.

What is Customer Lifetime Value? 

At its essence, customer lifetime value (CLV) is a calculation of the profit provided by the customer over their lifetime as a customer. In other words, it is the sum of their spending with you, less your cost to serve them (including the cost of the goods sold). 

Like many metrics used in email marketing strategy, there are a variety of ways it can be measured; and how it’s measured will determine what it can be used for. 

Understanding the value that each customer brings can help focus your resources and assess the impact of their actions through their lifecycle. 

 

Download our ebook “5 Unbreakable Commandments for Email Marketing & Data Enrichment”

 

How to Calculate Customer Lifetime Value? 

The simplest way to look at CLV is at the average customer level.  This may be as basic as looking at the average annual spend per customer multiplied by the expected lifetime of a customer (how many years your average customer stays a customer).

This can be relatively easy to calculate for a subscription product. For example, if monthly recurring revenue per customer is $20 and, on average, a customer stays for 36 months, the average customer lifetime value is $720 ($20 x 36 months). This can be enhanced by understanding the profitability (how much of that $20 is profit) and considering the time value of money (what a dollar is worth in the future), but this calculation provides a baseline look at lifetime value.   

Even this basic number can be hard for businesses who do not have a good understanding of their average tenure or how much a customer spends annually.  For example, a brick-and-mortar retail store may not link transactions to a customer, making this calculation more onerous.   

 

Segment Your Customers to Understand Their Contributions

While this average CLV number can help manage cost-to-acquire budgets, it is more meaningful to understand the value of different types of customers.   

By looking at customers by their acquisition channel, for example, you can see if one group has a higher CLV than another. Knowing this can help in optimizing channel strategy. 

The ultimate goal is to calculate CLV at the individual customer level, taking into account their specific spending and costs. After determining the individual customer’s contribution to the bottom line, companies typically find that a small percentage of customers account for a disproportionate value (the ‘80-20 rule’). By understanding these nuances, organizations can create more customer-centric strategies, focusing their efforts on their best customers and growing the value of the others. 

 

Why Calculate Customer Lifetime Value? 

Measuring CLV at a customer level can enable a number of critical activities that can help you better understand your customer data:

 

1. A better understanding of your most valuable customers

    1. Who are they? What paths did they take to their first purchase? What content are they interested in? How engaged are they with each of your marketing channels?
    2. Learn from the behaviors of your high-value segments to develop repeat-purchase or next-best-action strategies for all customers
    3. How do they differ from low-value customers? 

2. The ability to measure channel impact to support budget allocation

    1. Like all good metrics, CLV can help marketing to make informed decisions.
    2. Compare CLV of your email subscribers against that of customers not opted in to observe any high-level correlations. (Be mindful of the fact that correlation doesn’t equal.causation.)
    3. Utilize testing holdout groups to measure impact on CLV of specific actions.

3. Personalized messaging & audience segmentation strategy  

    1. Personalization is what drives relevancy in your email program & gets you closer to a one-to-one relationship at scale.
    2. Think about how your message may change when speaking to different audiences & how you can adapt offers to retain them.
    3. A good starting point is to segment your audience into three levels of CLV: Top 20% (high-value), Middle 60% (average), and Bottom 20%. (low-value)

4. Targeting high-value customers with loyalty & referral programs

    1. Celebrate your best customers with exclusive access to sales, features or membership perks.
    2. Use your most active fan base as an acquisition strategy with referral programs to help acquire similar customers.

  • 5. Cross-sell and up-sell opportunities 

    1. Monitor patterns & trends of how your customers move in and out of your CLV segments in order to drive strategies to encourage or nurture at times of decreasing value
  1. 6. The opportunity for look-alike audience acquisition

    1. Identify characteristics of best customers to enhance prospecting activities - finding more like the best. Leveraging this data, marketers can do look-alike prospecting and increase the quality of new acquisitions. 

Taking it up a notch

Some sophisticated marketing organizations use predictive analytics to paint an even more complete picture of a customer’s potential over time.  

These calculations typically incorporate predictive models that look at upsell and cross-sell potential. In addition, they leverage customer and product level retention likelihood scores. Some include even more details like customer-level servicing costs (e.g., number of calls to the call center), anticipated pricing changes and time value of money. A robust CLV metric of this type provides a customer-specific, future-looking value which can be used alongside past value to understand the customer more completely.  

Many of these same organizations use CLV as an enterprise-level KPI, tracking and monitoring the health of their customer base over time and using it to evaluate future investment decisions. 

Wrapping up

But even the most elementary CLV metrics can provide an organization with a tool to greatly enhance the effectiveness of their email marketing strategy. By leveraging these six strategies, you’re well on your way to not only better familiarizing yourself with your customer base but also uncovering more ways to drive profit potential for your organization. 

To get started evaluating the customer lifetime value of your email marketing campaigns, contact a Trendline CRM expert. Contact a Data Solutions expert to evaluate the health of your customer database.

 

Meet the Authors 

 

Emma-Warrillow 
Emma Warrillow, Practice Lead, Analytics, Trendline Interactive 
 

Former President of Data Insight Group (DiG), which was recently acquired by Trendline. Emma has over 25 years experience helping organizations with the strategic use of customer data to drive business results. Her work has spanned a variety of industries in B2C and B2B, including those who market to intermediaries (like brokers).

 

Tammi-Miller

Tammi Miller, Principal Consultant, Trendline Interactive
 

Tammi is an experienced email marketing professional with 11+ years experience leading email channel strategy, across acquisition, member retention, CRM & data analytics for high-volume B2C, B2B & e-commerce brands.

 

 



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