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Why Revenue Should Play Second Fiddle to Customer Lifetime Value

Why Revenue Should Play Second Fiddle to Customer Lifetime Value

For most people, Performance Marketing is all about the relentless pursuit of revenue. But when you focus on a single objective such as, 'grow revenue by xx% YoY', you inadvertently encourage behaviour that will undermine your ability to maintain that growth long term. Instead of making decisions based on what is right for the continued success of a brand, you hone in on the fastest way to hit that revenue goal. 

This has to change, otherwise brands will only ever find themselves concentrating their efforts on the customers they know spend more - existing ones - at the expense of expanding their buyer base and targeting new ones. 

What this means is that over time, the rate of growth stagnates as your audience pool reaches saturation. You'll have squeezed every penny out of a static segment and there will quickly be nothing left.

We need to move away from this kind of short term thinking as it is overwhelming most of performance marketing. The desired approach is actually a dual one - it recognises the need to re-engage existing customers and to nurture them for revenue, but more importantly it also places an emphasis on the acquisition of new customers in a cost efficient way.

The trick is to develop a way to measure lifetime value via channel. It's not a perfect answer, but it's the best solution we have. Lifetime value via channel seeks to define the worth of a new customer based on their first purchase channel and the subsequent purchases they make. A customer's first purchase might be a £5 trinket, and we may have spent £10 on getting that person to convert in the first place: An ROI of 1:0.5. Our performance marketing approach says that's an horrific return. But what we don't see, because our current measurement culture doesn’t take this into account, is that over time this person keeps coming back and over time they spend another £500. That's suddenly not a bad return - an ROI of 1:50.

What we’re talking about is essentially a Customer Lifetime Value model. From a marketing stand point this will allow brands to invest in far more effective, efficient activities. But importantly it will also justify spend on the often disregarded, mid-funnel consideration phase. By looking at the lifelong value of a customer, brands can validate investing more in the kind of relevant content that will help cement each new relationship, rather than just focusing on the start (acquisition) and end (conversion) of the funnel – it’ll be worth investment now for long term gains. 

Admittedly, truly accurate Customer Lifetime models can be expensive and difficult to produce, but it’s not a case of it either works or it doesn’t – having some idea of your CLTV is better than nothing. 

Tracking orders and Customer IDs in a consistent way across all marketing channels is key. That way, you can identify who is truly a ‘new customer’, what they purchased, and what channel they came from. You can garner information on average marketing spend per new order. By looking back at customer purchase behaviour over a specified time, you can quickly understand how much it costs to acquire a new customer via each channel, what they were worth to you at their initial purchase, and what they’re now worth however many months or years later. This gives you a ‘Lifetime Value’ that you can then use to optimise the acquisition of new customers to, taking us beyond immediate ROI as a metric, and into a better world.

Sean Philip

Sean Philip

Account Director at iCrossing, Sean is responsible for managing senior client relationships with high profile brands like Coca-Cola, LEGO, LG Electronics and UNIQLO. With experience across the spectrum from performance marketing to design and build, Sean is passionate about digital marketing and the role that data-led insights can play in building brands and engaging with consumers.

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