Customer Lifetime Value (CLV) has long been a key metric for data-driven companies and an important step in thinking strategically about long-term goals over short term profits. While the most basic accounting of CLV might seem simple – (Average Order Value) x (Number of Repeat Sales) x (Average Retention Time) – getting all the right data together to perform that calculation, while also extending the lifetime part of that equation, is far from easy.
Instead, it's time to start focusing on the profit of a lifetime customer, incorporating customer metrics across financial, marketing, service and order processes and then give everyone in the organization that same insight, allowing them to impact both the lifetime and profit side of that equation. However, assembling and distilling that data from multiple point systems spread across an organization has proven to be challenging for most businesses.
Careful planning along with a unified commerce system can help to attract and retain lifetime customers.
The Cost to Acquire Customers
The first transaction with a customer is typically the most expensive. An aggressive retailer may even take a loss on the initial transaction, knowing that the second and third transactions with a customer could prove worthwhile in the long run. Marketing costs such as costs per click are the most direct indicators of acquisition costs, but quantifying the costs of promotional campaigns such as a free shipping offer can be very difficult to measure.
On top of that, the marketing team may be following cost per clicks from Google and other sources, while the e-commerce team is tracking website traffic, and finance is tracking transactional data. This siloed approach only results in disjointed metrics from across departments that provide no real insight into the true customer acquisition costs.
The Emergence of the Omnichannel Customer
The omnichannel customer who researches, browses and ultimately purchases from across multiple channels has only made measuring customer lifetime profit even more difficult. For many retailers, a customer who spends $100 in the store, $100 from its catalog and $100 online is treated as three separate customers who each spent $100, not one customer who spent $300 across multiple channels.
Armed with cross-organizational insight into customer lifetime profitability, merchants can begin making strategic decisions about targeting and retaining customers. Not every customer is the same. Some are bargain shoppers who only make purchases when deeply discounted.
Offering premier brands via a Google pay-per-click campaign may pay off in the long run by turning those fair-weather shoppers into premium customers because some products in particular appeal to customers with dramatically higher lifetime value. Those businesses tracking customer lifetime profit are better equipped to identify what those products are and fully capitalize on them.
Then, how do you track the omnichannel customer? Loyalty programs are one way, but email marketing is a way to make the connection across channels. Ask an in-store customer if they want their receipt emailed to them and you can continue to affect the CLV and with it, lifetime profitability. Email an online customer about promotions at their local store and you can do more of the same.
Customer Service Costs
Any evaluation of customer value needs to include the costs of servicing that customer. Using online tools such as managing returns and order tracking can not only drive down costs compared to customer support agents on the phone, it can improve satisfaction by reducing wait times and letting customers drive the process. Being able to correlate the costs of serving customers back to profitability from a financial perspective makes it much easier.
A unified commerce solution can bring together all the components of assessing CLV, and just as important, impact the length of the customer lifetime by bringing together financial, marketing, customer and product data in one place to not only determine the customer lifetime value but the customer lifetime profit.
Andy Lloyd is General Manager of Commerce Products for NetSuite, a provider of cloud-based omnichannel software that helps retailers transform commerce by seamlessly connecting every step of the business — e-commerce, POS, CRM, order management, inventory, merchandising, marketing, financials and customer service.