Lifetime Value Analysis: What is it and how can it work for you?

Not all customers are alike in the value that they offer to a brand. Some may spend a great deal, but have a very short tenure with you. Others may spend a consistently small amount, but do so over many years.

To ensure your resources are being utilized effectively, you need to quantify the value that a customer is likely to bring to a brand and then identify those customers that offer the greatest value to a company. In addition, it helps to prioritize new customers based on the value that they will bring, allowing for more impactful marketing allocations.

Customer Lifetime Value (LTV) allows you to achieve these goals by quantifying the projected revenue that a customer will generate over the course of his/her life with a brand. It can prove especially valuable when evaluating various customer acquisition strategies to ensure maximize ROI for an organization’s marketing dollars.

To estimate a current or potential customer’s value, LTV analysis takes several different inputs including:

• Tenure with the company
• Frequency of purchases and amount spent each time
• Pattern of purchases
• Profit per transaction
• Customer service requests and other related “expenses”

Using this information, we can develop probability models that allow us to estimate the value that a customer is likely to bring to the company during his/her “lifetime.” This data can then be fused with survey data to yield important insights such as:

• Identifying high valued customers who are at risk of defection
• Developing strategies for promoting the retention and growth of high value customers
• Creating drivers of value promotion among potential customers
• Executing marketing approaches to most effectively attract prospective customers

Lifetime Value Analysis is an important tool for understanding a customer’s or prospect’s worth in the long term to ensure that sufficient resources are targeted at those who offer the greatest value.

Contact us to learn more.