Mighty Metric: Customer Lifetime Value

Customer lifetime value is an indicator of how well a company identifies and nurtures profitable, long-term customer relationships. The biggest challenges for organizations include aggregating the right data for a robust view of the customer, shifting from assumptions to predictive knowledge of the customers’ needs, identifying the moments of opportunity to deliver delight and differentiation, listening for customer cues beyond how they respond to an engagement tactic and meeting the customer in real-time.

Marketing leaders spend much of their waking hours — and at least a few sleepless nights — thinking about marketing’s economic impact on the business, questioning, “Are our marketing campaigns targeting the right customers?” “Are customer relationships paying off in the long run?” and, most importantly, “Are we hitting our 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: customer lifetime value, or LTV, which predicts revenue attributed to the future relationship with a customer.

A new report from the Chief Marketing Officer Council, “Humanizing + Analyzing Relationships to Drive Revenue, Retention and Returns,” highlights the importance of understanding LTV in order to inform strategic business decisions and marketing budget allocation. In fact, it found that customer value creation is the No. 1 reason marketers are focused on LTV.

The insights are based on a survey of over 150 brand leaders and in-depth interviews with executives from Informatica, PepsiCo, Electrolux and RedBubble. 

The report found opportunity for improvement. Among its findings, 47% of marketers track LTV slightly well or not well at all; 68% rate their LTV-to-CAC (customer acquisition cost) ratio as average, below average, or very poor; and 44% are slightly effective or not effective at segmenting and targeting customer sets with the most potential for long-term value.

“More sophistication with LTV can help companies focus their marketing programs and budgets and respond to shifting markets,” says Donovan Neale-May, executive director of the CMO Council. “Our study found that a majority of CEOs, chief revenue officers, sales leaders and line-of-business executives want to see quarterly LTV to help them make better strategic decisions.”   

LTV: An Overall Health Check on Marketing and the Business

For converting customers, the top four most important initiatives are:

Channels where customers leave signals about their needs are:

Core components marketers use to measure LTV include:

Marketers aren’t the only ones leveraging LTV to drive strategic decisions. They’re joined by:

Source: CMO Council

The Chief Marketing Officer Council is the only global network of executives specifically dedicated to high-level knowledge exchange, thought leadership and personal relationship building among senior corporate marketing leaders and brand decision-makers across a wide range of global industries. The CMO Council’s 16,000-plus members control approximately $1 trillion in aggregated annual marketing expenditures and run complex, distributed marketing and sales operations worldwide. In total, the CMO Council and its strategic interest communities include more than 65,000 global executives in more than 110 countries covering multiple industries, segments and markets