Maximizing Your Customer Lifetime Value

Welcome to the second article of the Online Customer Acquisition Series.

In my last article, I went into detail on how you can calculate and improve your Customer Acquisition Cost (OCAC). Today, we will dive into an equally important concept: Customer Lifetime Value (LTV), how it relates to the former, and what you can do right now to maximize it.

Let’s talk about why figuring all of this out is so important;

The biggest reason companies die is because their (Online) Customer Acquisition Cost vs their Customer Lifetime Value costs often looks like this:

In my experience, that’s because so many businesses focus on transactional and one-time-off customer value, and forget to invest in what happens after the sales conversion. 

Here’s an illustration of how an optimized and effective online marketing funnel with sight on customer acquisition AND customer retention should look like:

Never mind the small print for now, just focus on the the last two stages in the illustration: Customer Relationship, and Customer Retention.

It should go without saying that you need to invest in making your service/product better to make your existing customers happy. Regardless of what online customer acquisition strategy you are using, you should also be focusing on re-marketing to your existing customer base with sight to retaining them.

Otherwise the cost of your online customer acquisition will greatly outweigh the amount how much you can make from any given customer.

Does this makes sense to you?

The equation is simple:

Life Time Value > Cost of Acquisition

In other words, if it costs you $1,000 to acquire a customer online, you should have a plan to make $1,000 off of that customer asap to have a healthy cash flow.

The point of improving your online customer lifetime value is to ultimately create balance in your business model that allows you to offset the unavoidable high cost factors that inevitably go along with running your business.

Now, how can you improve your online Customer Lifetime Value?

The basic rule of thumb is to reduce your Customer-Churn ratio. Losing customers increases your customer acquisition costs in different ways:

1. Not only can it is more expensive to acquire new customers than retain existing ones, but dissatisfied customers (particularly in our 24/7 social media connected world) can do serious damage to your company brand reputation, making new customer less inclined to trust your product/services.
2. The latter, in turn, may increase the marketing expenditures required to convert customers as you overcome negative brand biases.
3. Compromising your ability to mature and broaden customer relationships, thus losing out on crucial up-sell and cross-marketing opportunities. Not to mention those vital referral relationships that you work so hard to establish.

Other ways to improve your online Customer Lifetime Value are:

• Using Email Marketing and other online marketing tools to pre-emptively answer common questions, upsell services, and provide customer education.
• View every customer interaction as an opportunity to improve customer loyalty.
• Incorporate customer feedback to improve everything from user experience to product/service features.

Basically, as a local business owner you need to ensure that adequate monies are allocated within your online marketing plan and budget expenditures towards customer support tools, satisfaction surveys, and online platforms to facilitate an ongoing dialogue with your customer base.

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For more information on best practices for local lead generation, visit our website at www.businessreputation.solutions