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What Is Missing In The Customer Lifetime Value Model?
Google has been encouraging brands to think beyond short-term, transactional gains and look toward maximizing customer lifetime value (CLV) for the past year.
Why is this so important? In a world of splintered channels, it’s hard to shout SALE! and pull short-term gains for brands, mostly because no one’s listening but also because no one really cares.
Since short-term sales goals aren’t happening, analysts are switching to something that gives them meaningful work — evaluating the long-term effects and “lifetime value” of that User.
“This view of customers has been a challenge as the consumer journey has continued to change and split not just across screens, but also online to offline,” argues PMG founder and ceo George Popstefanov, in a Think With Google piece.
“[Customer Lifetime Value] is a much better approach to evaluate investment based on long-term returns from marketing activities rather than the short-term success of a single sale,” agrees digital strategist Dave Chaffey.
So.
Put together these parallel paths of thinking, and it’s clear that we need to look at Users not only for their initial new business engagement (and repeat sales), but also for what that all adds up to: customer lifetime value.
But what’s missing in the math of that equation was pointed out recently by Jon Bond at the Primal.Live NeueHouse event in Manhattan. (Jon Bond was cofounder of the legendary badass advertising firm Kirshenbaum & Bond, which later became KBS (Kirshenbaum Bond Senecal). Jon is now co-Chairman of Shipyard, Inc.)
“When I started in this business, it was the 80/20 rule [20% of your customers are 80% of your volume],” says Bond. “Today, the ROI is not only the lifetime value of ‘me’, but the lifetime value of all the people I recruit into the franchise and the lifetime value of all the people they recruit. So it becomes nonlinear and geometric, so it’s more like the 96/4 principle than the 80/20 principle.
“I think that’s where it is: it’s getting people a hundred percent bought in who are the right people, and those people are worth potentially hundreds of times more than just a regular consumer.”
