Assessing ‘Lifetime Value’ for Customer Relationships

Examining the numbers behind any campaign will likely lead to better productivity and more insightful strategy. But consider how useful it would be to calculate the exact value of each customer relationship.

The metric called ‘lifetime value’ does just that. It is a net monetary value associated with each customer relationship. It allows companies to access better acquisition details and provides for a faster feedback loop.

At the Daily Deal Summit East earlier this month, industry experts emphasized the importance assessing lifetime value for accounts. Jake Stein, co-founder of RJMetrics, said at the April 18 panel, “If you can use the metric to make some decision or take some action, then it’s useful.”

Knowing Which Data is Worthwhile

Advertising executive John DeMayo joined Stein at the summit in praising the value of metrics, explaining how to assess a data set’s decision-making potential. They said that marketers should ask, “What are we trying to accomplish?” Then, “Is it possible to get this data?” If data is going to cost extraordinary amounts of time and money, it may not be worth the effort, they said. Remember, the point of data collection is to improve productivity.

Lifetime value is generally an effective metric to consider, Stein said. “It’s very actionable,” he said. “You can use it for a lot of tactical decision making.”

Calculating Lifetime Value

How does one go about creating these miraculous data sets? It probably requires making friends with people like DeMayo and Stein. But for those interested in crunching the numbers themselves, Stein explained that lifetime value can be calculated through cohort analysis, “the view of how specific, unchanging groups of customers behave over the same periods in their respective customer life-cycles.”

Then, start at the highest level of the data set (with the most amount of information), and “drill down until you lose statistical significance,” Stein said.

DeMayo suggested isolating company trends versus media trends. “Consider looking at your email rates and click-through rates as a proxy for revenue,” he said.

When long-term customer satisfaction is at the forefront of a business plan, it’s worth spending the time and money to track customer behavior, they said. With due consideration, tactical relevance, and helpful data filters, metrics can help turn a company’s trudging pace into a spirited gallop.

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