With the release of the Econsultancy's Customer Lifetime Value report
that we sponsored, we enlisted our CCO, Matthew Kelleher, to introduce the report to you and to breakdown why you should be making Customer Lifetime Value a core KPI.
We hope you enjoy!
Hello and thank you very much for joining me for this vlog. My name is Matthew Kelleher, I'm the Chief Commercial Officer for RedEye and today I'm going to be spending four, five or six minutes talking about this; The Econsultancy Lifetime Value Report, recently out, recently published and which RedEye, us, we have sponsored.
The reason why we sponsored this actually goes back a few years, I was in conversation with the CEO of a client, he told me how important Customer Lifetime Value or Lifetime Value, same thing, was for their business. What he was describing was the sale of their business and that some of the things that RedEye were able to do in terms of increasing conversion rates or reducing churn were able to increase the value of a customer, increase the value of the overall database forecast forward, and increase the value of the company and the sale price of the company. And it set me thinking about how important Lifetime Value is as a KPI, as something that organisations track and why we hear so much more about it in the marketplace. If it was that important if it was something that was defined by value and improving the value of a business and actually should be something that's easy to track throughout of business and has relevance and context for many different businesses. Hence why a lot of the work we've been doing recently is about Customer Lifetime Value and why we were so keen to sponsor this report.
So today, well actually this vlog is gonna be split into two parts. Today what we're
going to do is we're going to very quickly talk about the key variables, the key insights that come out of the report. And then in the second part of this vlog, what we're going to do is look at the meaning behind it and ways that organisations might want to utilise Customer Lifetime Value within their own businesses and some of the pointers that we can take from this back into organisations own businesses.
So let's start with defining Customer Lifetime Value. When you read about lifetime value you come across multiple different types of definition. For instance, there's an obvious discrepancy in how you define it. Do you define it around profit or do you define it around revenue? For this report we find it thus; Lifetime Value is the total worth of an individual customer over the lifespan of that relationship with a company, i.e. it's how much money you're going to make out of an individual customer. So if an individual customer comes on board at 100 pounds and that's what you're forecasting it and you as the marketer can increase that to 150. You are ultimately increasing the total value of the business and the worth of the business. So you're here at board level and hitting your targets as a marketer. Hence why I said you know it has real context and the value as a KPI at the top and throughout the business, you know from board level through to the marketing department.
So what I thought I would do next is I'll pull out some of the key top line stats that come out of the report. Now, one is how many organizations are actually measuring Lifetime Value? So the answers to that came out at 33 percent which I personally thought was really quite low in terms of what my expectations were. In terms of you know who is and who isn't actually measuring or putting a measure against the worth of the customer to a business. I thought that strangely quite low in considering organisations are all about their customers. But what was interesting was that 76 percent of organisations said that Lifetime Value was a priority so clearly there's an understanding that Lifetime Value is key. And somewhere between understanding is key and delivering the measurements around it things are not getting put in place. Take that a step further and how many organisations actually have a mature approach. It's shockingly low! 1 percent of organisations state they have a mature approach to measuring and using Lifetime Value as a KPI within their business and that I found to be quite shocking. However, 91 percent of organisations do believe that focusing on retention is more profitable behaviour for an organisation than focusing on customer acquisition, i.e. retention strategies are more profitable than acquisition strategies. I can make more money and this has been proved in the marketplace and with countless bits of research over the years and that is therefore fully understood. Therefore, that suggests that there was a long way to go for organisations in terms of actually making that trip because of course Lifetime Value is actually all about customer attention and driving customer attention.
So two key bits of insights that I want to draw out the report that I thought I'd share.
Number one is the organisation's think they're better at converting customers or keeping them. What do they think is the major focus for all that they want to put in place for helping drive and improve lifetime value. 77 percent of respondents believe that conversion or that they are doing a good job in converting customers. Less than 50 percent believe they're doing a good job in terms of retaining customers so this backs up a lot of the conversations that we have with customers, that I have personally with organisations which is, for instance, a retailer is all about sales, they're all about selling. Churn and retaining customers over the long term is something that doesn't get as much focus as converting the customer. However, of course the more customers you can retain over long term that has an immediate impact on Customer Lifetime Value. The second thing is it's all about the data. So 52 percent of organisations believe that better application of data would drive up Customer Lifetime Value and 38 percent say that the lack of an effective single customer view in their business, i.e. by putting all the data together is actually what's stopping them from driving forward Lifetime value.
So the final step I wanted to pull out is this one and that is that only 6 percent of organisations believe they are putting together effective much multi-channel marketing automation campaigns that are helping their organisation deliver a good Customer Lifetime Value. And what this, therefore, system means there are 94 percent of organisations who have got work to do or put it another way have got an opportunity. And this for me is really exciting in that organisations don't believe the job is done. Clearly, 76 percent of organisations believe that developing Customer Lifetime Value and driving up Customer Lifetime Value as a priority for their business. 91 percent of organisations believe that customer retention is profitable, in fact, more profitable than customer acquisition in terms of building strategy. But 94 percent of organisations have still got a lot of work to do and that for me is the opportunity. A lot of organisations could still really make big inroads into improving customer lifetime value by a focus on that as a KPI, on that as a variable and using things like customer journey mapping in order to start to focus on the key points. How you then, the phrase I use, turn those dollars, how can I improve prospect to customer conversion, how can I improve the ascension of customers that the VIPs and how can I reduce churn. We do that we start to improve Customer Lifetime Value and ultimately we start to improve the value of our business.