Marketing leaders spend much of their waking hours — and at least a few sleepless nights — thinking about marketing’s economic impact on the business. Are your marketing campaigns targeting the right customers? Are customer relationships paying off in the long run? And, most importantly, are you hitting your new revenue-growth goals?
Attributing marketing efforts to financial outcomes hasn’t been easy, but re-thinking an old marketing metric can help pave the way. We’re talking about customer lifetime value, or LTV, which predicts revenue attributed to the future relationship with a customer.
There’s a lot of opportunity for marketers to improve LTV. Just look at the key findings in our report: • 47% of marketers track LTV slightly well or not well at all • 68% rate their CAC to LTV ratio as average, below average or very poor • 44% are slightly effective or not effective at segmenting and targeting customer sets with the most potential for long-term value A redesigned LTV that reflects the new digital realities and the empowered buyer gives marketers greater insight into valuable customer segments and campaigns that truly impact the customer experience. This allows CMOs to design a more effective, efficient marketing mix.
For LTV to be truly insightful, though, marketers have to re-design LTV in a way that reflects the truth about the empowered digital customer in relation to their company. The formula must take into account a host of factors, among them: customer segmentation, psychographics, discount rates, cost of acquisition (CAC), retention costs, churn rates, revenue per user, transactions per user, commercial metrics, brand health metrics, penetration frequency, advocacy.
In other words, LTV isn’t a one-size-fits-all metric or a quick fix. It requires the commitment and ongoing participation of executives across the company. LTV has to be defined and re-defined over time to reflect the changing market, product and buyer. But the payoff can be significant, and there are ways to start small to get buy in and traction.
This report by the CMO Council, in collaboration with Deloitte Consulting LLP, explores why LTV is important, what makes measuring and tracking LTV so challenging, and how marketers can start down the path toward better LTV scores. Our report is based on a survey of over 150 global marketing leaders and in-depth interviews with executives from Informatica, PepsiCo, Electrolux and Redbubble.
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