"We are making sales, but I just can't figure out why the numbers aren't
working," the prospective client said.
I replied, "Yes, but look at who is buying....they will never buy anything
else from you again. They don't look like, and won't behave like, your best customers. Since you rely on those future
sales for your profit, you are losing money attracting these specific kinds of buyers."
That's when the
light bulb went off in the client's head.
And that's when things started to turn around for them.
Key Point: Not all customers are created equal. There are some customers you don't want to attract
(low lifetime value) and some you do (high lifetime value)! You have to know the difference between the two and only
spend money attracting the right kind of customer!
This concept has huge implications to your profitability,
yet is rarely discussed.
This point often gets lost in the discussions about Customer Lifetime Value (CLTV).
Customer Lifetime Value is simply a summary of the monetary value of your average customer during their historical
interaction with you.
For example, if "Joe" has been a customer for 3 years and has spent $700 and
been refunded $100, then we would say Joe's lifetime value as your customer was $600.
If you do this
calculation for all your customers, then you can come up with an average Customer Lifetime Value. Let's just say,
on average, that your company's Customer Lifetime Value is $200. This takes into account customers like Joe who
spent quite a bit with you, and other customers that spend much less, say $20 with you.
Very important point:
Customer Lifetime Value is an average of ALL the types of customers you are attracting...those with
high LTV and those with low LTV.
Now if you are like most companies, you'll use this Customer
Lifetime Value to determine the maximum amount you are willing to pay to acquire a new customer. In other words,
you will be willing to spend some percentage less than your CLV on advertising to acquire a new customer.
example, if your CLTV is $200, then you would likely be ok spending $50 to acquire a new customer. This would leave you with
$150 gross profit for every new customer you brought in, and you could rinse and repeat this all day long.
While it's not breaking the bank, it will generate a positive return on ad spend.
But this is where the
rubber meets the road, my friend.
I'm about to blow your mind...
If you are basing the amount
you are willing to pay to acquire a customer on your Customer Lifetime Value, then you are leaving enormous amounts of
profit on the table! In fact, you are hamstringing your marketing team and building mediocrity into your system.
Because you are spending a large portion of your advertising budget every single
month to attract the 80% of your customers that drag your Customer Lifetime Value into the toilet!
precious ad budget to attract customers that will spend very little with you over their lifetime with you?
some of you, the light bulb just came on!
There is a better way! Let me show you...
our discussion earlier about not all customers being equal?
Well, in that statement lies the mechanism we can
use to immediately ramp up the ROI on your ad spend.
The process is very simple, but it has not
historically been within reach of most mid-sized marketing companies, and certainly not available to small business
entrepreneurs. The access to data and analytics just wasn't available to everyone in the past as it is now. In
addition, the expertise in doing what I am about to explain to you simply isn't that wide spread yet.
Here's how it works:
The 3 Step PerfectPath Ideal Prospect Targeting System
Step One: We analyze your buyer file and augment it with a vast array of 3rd party demographic, psychographic, and behavioral data. This provides the raw data for building an Ideal Customer Profile.
Step Two: We analyze this data to determine the family of characteristics and behaviors that identify your very best (long term profitable) customers. We use several proprietary algorithms to build this model and it is proven to be quite effective. The output of this step is an Ideal Customer Profile that can be used when setting the targeting parameters in all major traffic platforms. This goes far beyond simple age, gender, ethnicity and digs deep into geo-location, income range, stage of life, and much more.
Step Three: We use this newly created Ideal Customer Profile in all our advertising campaign targeting so that your advertising budget is spent attracting prospects that look and behave like your very best and most profitable existing customers.
I'm sure by now you are seeing the power of this process.
When you follow this process, you exponentially improve your return on your advertising investment. Immediate improvements of 30% - 60% are typical.
The results can be so much better it can be staggering.