When starting down the path of a digital marketing strategy, it’s extremely important to understand the concept of your Lifetime Customer Value, and how to calculate it. Knowing your lifetime customer value will help you make well justified decisions when it comes to what activities you do as part of your digital marketing strategy and how much time and effort you invest in the execution of the strategy.
How does the Lifetime Customer Value impact my digital marketing strategy decisions?
Let’s put it this way. Let’s say, hypothetically that you’ve calculated that your lifetime customer value is $8,000. That is, on average, over the lifetime of a customer they will spend $8,000 with your organisation – this may be over the course of 6 months, 2 years or 5 years. A digital marketing strategy is a long term customer acquisition investment which, if done correctly, will bring in customers for years to come. (How to calculate your Lifetime Customer Value.)
How to Calculate Customer Lifetime Value
Let’s say that as part of your digital marketing strategy you’ve calculated that you’re spending around $10,000 a month on your digital marketing – over the course of a year that works out to be around $120,000. By understanding and knowing your lifetime customer value, you can figure out how many new customers you need to acquire to break even, and how profitable the digital marketing strategy has been.
Let’s use some very realistic figures.
Digital Marketing Strategy Year 1.
In this case, hypothetically, let’s say that during the course of the 12 months, this specific campaign has brought in a total of 20 new customers. 20 new customers, multiplied by the lifetime customer value of $8,000 equals $160,000.
Digital Marketing Strategy Year 2.
Provided that part of the digital marketing strategy included organic search engine rankings, your website should continue bringing in new customers the following year. Now let’s assuming that you keep the digital marketing strategy budget at the same monthly amount and continue on with the same (but revised) activities. So, next year, instead of acquiring 20 customers, you acquire 50 new customers. 50 new customers multiplied by the lifetime customer value equals $400,000.
Digital Marketing Strategy Year 3.
Now, in the third year, your digital marketing campaign is so refined, so smooth and optimised that you acquire 80 new customers. Let’s do the math again. 80 new customers multiplied by your lifetime customer value of $8,000 equals $640,000 of new business.
Summary of your 3 year digital marketing strategy investment.
So in three years you’ve invested $360,000 in your digital marketing strategy, and acquired a customer base with the value of $1,200,000 for your business.
And these are really conservative figures!
Imagine if instead of 20 customers in the first year you gained 30. And instead of 50 customers in your second year you gained 70. And instead of 80 customers in your third year you gained 100. Now you’re looking at $1,600,000.
Or let’s think of it this way. When you started the campaign you calculated that your lifetime customer value was $8,000. But during the course of the three years, because your digital marketing strategy also put a strong focus on existing customers, they began purchasing more from you! Or were prepared to pay a more premium dollar for your services! And then the lifetime customer value increased to $9,000 or $10,000 each!
That during those three years, what you’ve also done is built up a valuable business asset – your website is now a strong, powerful, lead generating machine, your email marketing campaigns are practically automated, and your customers are becoming more loyal and perhaps engaging and buying from you even more.
Imagine what that would mean for the value of your business!