Only 17% of Brands Fully Understand This Key MetricMar 1, 2017 - by Jason Grunberg
If you want to understand customer retention, you need to understand customer lifetime value. Unfortunately, customer lifetime value can be tricky to define and measure (how long is a customer lifetime, anyways?). Because of that, many marketers stumble over it, and turn to metrics such as customer satisfaction and net promoter scores instead.
Only 17% of marketers say that within their organizations, everyone that needs to understand customer lifetime value does so. 18% say their organization does not even calculate customer lifetime value.
These figures come from a recent study by Sailthru and Forbes Insights, which recently surveyed 300 retail and media executives to discover how they approach customer retention and how they leverage it throughout their enterprises. The study found that 14% of companies are increasing investments in retention over acquisition and seeing success in doing so, so we’re calling them the retention gurus. Another 14% did just the opposite. They favor acquisition over retention, so we’re calling them the acquisition athletes.
From Metrics to Management
While neither group of organizations was exactly stellar in its use of customer lifetime value as a metric, it’s perhaps not surprising that the retention gurus are doing quite a bit better. Yet even still, the most shocking insight regarding CLV is that while many organizations understand the causes and effects of lifetime value, few say that their management teams understand the impact of the metric on revenue and growth.
Among retention gurus, just 19% said that in their company, management understands the impact of CLV on revenue and growth. Only 9% of acquisition masters were able to say the same.
They say you can’t manage what you cannot measure, but in this case, clearly what is being measured isn’t being managed. And it’s why, we believe, organizations are struggling to prioritize retention focused investments at the same rate that acquisition investments are growing.
When the Long Game is the Only Game
The disconnect comes from the priority that organizations place on short-term growth over long-term gains — a dangerous game. Decisions that drive conversion optimization today often forsake tomorrow’s profits.
Take sweepstakes for example. This tactic has long been used by retailers and publishers to drive email list size and new customer acquisition on the cheap. Offer a prize that nobody can refuse, or so many chances to win that consumers think they have a shot at the prize and you’ll get an email address. It’s a great report to go back to your boss with; showing thousands of new consumers have entered the top of the funnel for a lower cost per acquisition than running ads on Facebook, sampling or other high cost, high touch efforts.
But take a look at the results from those programs downstream and the picture becomes bleak. Consumers coming in from contests are more than 50% more likely to opt-out of communications in the first 30-days than those coming from other paid channels. Even more sobering, they’re more than 60% less likely to ever make a purchase.
Given these factors, that cost per acquisition rate soars when considered over time as the goal of acquisition is conversion and if that is never reached the customer unit economics simply do not pan out.
This is where the CLV-to-management disconnect becomes critical to solve. To do so, marketers must shift their thinking and measurement strategies from campaign-to-campaign to cohort-to-cohort. By dissecting marketing’s impact on the cohort level, trends over time can be used to make the case to management for prioritizing long-term initiatives.
And then finally CLV may see the light of day in the next leadership team meeting.