Leveraging Customer Lifetime Value (CLV) as a Key Marketing Growth Strategy with Russell McAthy

Perhaps one of the most prevalent challenges in the marketing world is having to prove the value of your efforts.

C-levels and managers want to see tangible returns.

The pressure to deliver can be overwhelming.

But what if you had a “secret weapon” in your arsenal - one that can transform the way you approach marketing and unlock unprecedented growth for your business?

You don’t.

What you do have, is a proven methodology that can help grow a business sustainably, a methodology not yet accepted as the norm in the industry: growing the Customer Lifetime Value (CLV).

This comprehensive article delves deeply into the subject of customer lifetime value (CLV), examining why it's the most coveted marketing metric and how you can use it to make better, more informed decisions.

It's time to transform your perspective of your target audience and maximise the effectiveness of your marketing initiatives.

Understanding the Power of CLV

CLV as a metric has been on marketing and finance teams' radars for many years, yet people frequently fail to see its actual potential.

It is regarded as "the holy grail" by certain marketers.

For marketers, lifetime value complexity is the ultimate goal.

They've been working hard to understand this specific metric, and they think they'll be able to use it as the foundation for all of their decisions once they get it.

Given that it goes beyond the conventional focus on quick returns or last-touch attribution, CLV is incredibly potent.

It looks at the big picture, taking into account the full value a customer brings to your business over their lifetime.

This includes not just their initial purchase, but also any subsequent transactions, referrals, and the potential for long-term loyalty and advocacy.

You can make far better business decisions if you know the full lifetime value of your clients.

You're taking a more dependable method when you can decide based on factors other than the immediate return on investment.

You know that keeping customers is important; ideally, they will return for more purchases.

It's crucial to understand that putting short-term profits ahead of future sales potential can have negative effects.

Overcoming Attribution Challenges

Attribution comes with a major caveat: determining which marketing touchpoints and channels contribute to a customer's journey and eventual conversion.

Keep in mind that you’re operating in the world of data privacy regulations, cookie deprecation, and the rise of multi-touch customer journeys.

In this context, traditional attribution models are becoming increasingly unreliable.

I believe that, for this particular issue in a digital-first business, the winning approach is a machine learning model that is trained on all touch points.

This smart attribution model considers user interactions and micro-events that transpire during the customer journey in addition to channels and touchpoints.

By examining more detailed data, the model may provide a far more reliable picture of which advertising campaigns are actually generating conversions and future income.

Building upon that base, you reaffirm the value proposition and concentrate on activities that result in multiple conversions and more income.

Marketing management becomes simple and efficient when these components are fully integrated.

Cohort Analysis's Potential

Cohort analysis is another essential element for calculating and using CLV effectively.

Think about it - you can’t even breathe without someone telling you about the importance of knowing your audience and your customers.

At the same time, you’re being told to be wary of the individualism and uniqueness of your customer base.

In this case, your safest bet is to segment your customer base into cohorts based on factors such as:

• acquisition channel,
• purchase behavior, or
• even demographics.

Only after the segmentation can you be certain you’ll extract accurate insights into how different groups of customers contribute to your business over time.

Your future (smarter) decisions are based on learning from the past and applying your newly gained knowledge into almost predicting the future.

This cohort-based approach allows you to identify your most valuable customer segments and tailor your marketing efforts accordingly.

For instance, you may find that the CLV of clients you get via Google Ads is much higher than that of clients you get from other sources.

With this information, you may reallocate resources away from less successful acquisition channels and concentrate more on the high-performing one.

Thinking in Both Short- and Long-Terms

The current hurdle in putting a CLV-driven strategy into practice is striking a balance between short- and long-term growth.

The current emphasis among marketers is mostly on last-touch attribution and immediate rewards, which makes it challenging to defend investments in long-term strategy.

We're in a situation where we need to evaluate our approach.

Take a moment to reflect on the actions we want to see in our audience.

We can be training people to only buy when discounts are available, for instance, if we keep offering them discounts.

The secret is to change your perspective from a narrow concentration on immediate results to a more comprehensive understanding of customer value.

Allocating your marketing budget and resources more strategically is another way to optimise your business model. And realizing your customers' true lifetime value is the natural genesis of this approach.

Using CLV Knowledge to Improve Your Marketing Approach

How can you implement these CLV insights and change the way you market?

Here are some crucial tactics to think about:

1. Rethink Channel Allocation

Somewhere on the road, marketing managers became “spending managers”, hyper-focused on injecting budgets into Meta, Google, or Tik Tok.

However, there’s a better approach; a CLV-oriented one. This will show you where to spend your money and who to spend it on.

CLV lets you understand the long-term value of customers acquired through different channels.

With that understanding, you can make more informed decisions about where to invest your marketing budget.

Channels that may have seemed less effective in the short term could prove to be powerful drivers of CLV.

2. Optimize the Customer Journey

The customer journey doesn’t end when the product reaches the customer.

Instead, it ends when the customer achieves the progress they were hoping to achieve with your help.

Until you understand the distinction, you shouldn’t even dream about customer retention.

This phase involves doing a cohort analysis of your customers to determine which touchpoints and experiences are most important for fostering loyalty and repeat business.

Make use of these information to improve your customer journey and produce more engaging, personalised experiences that deliver tangible outcomes.

3. Give Priority to Customer Retention

The obvious problem is that there's little use in gaining clients that don't come back.

Although CLV doesn't mean completely ignoring acquisition, it does provide room for tactics that protect and grow your most precious clientele.

These could include individualized communications, loyalty plans, and special offers for products or services.

4. Make Your Products and Services Better

A defective product cannot be fixed by marketing efforts.

You can obtain important insights into the features, goods, or services that your audience is responding to the most favorably by keeping a careful eye on the CLV of various client categories.

Make use of this data to inform your product roadmap so that you can keep improving the value you offer to clients.

5. More Informed Acquisition Tactics

Knowing the true lifetime value of your clients leads to strategic decisions regarding your customer acquisition efforts.

Think about it; isn’t prioritizing the channels and campaigns that will draw in high-value, loyal customers a better option than concentrating just on the lowest CPA?

Adopting a Mentality Driven by CLV

Customer lifetime value ultimately has the capacity to change the way you think about your company and your clients.

Unprecedented growth and success can be unlocked by rejecting a limited focus on short-term measures and adopting a more comprehensive, long-term perspective.

Lifetime value is regarded as the gold standard of metrics because of this, allowing you to make better decisions by tracking it and analyzing it by consumer segments.

This method goes beyond basic conversion numbers to provide a more comprehensive picture of overall customer behavior.

To put it succinctly, adopting CLV entails making data-driven decisions instead of continuing to guess.

Conclusion

As I've discussed in this article, overcoming attribution issues, embracing cohort analysis, and balancing short-term and long-term thinking are critical to unlocking CLV's full potential.

When integrated into your marketing strategy, these methods can help you optimize channel allocation, improve the customer journey, and make better acquisition decisions.

Although this does not necessarily result in getting higher-value consumers at a cheaper cost, it does mean that you will attract higher-quality customers and create an environment in which they are more inclined to stick with your company.

Remember that adopting CLV is a constant process, but the rewards are well worth the effort: you'll be well on your way to achieving extraordinary success for your company.