A recent study from the CMO Council and Deloitte found that only 17% of CMOs track Customer Lifetime Value (CLV) well.
Customer Lifetime Value is a fundamental marketing tool, but it can be a bit of a guessing game, particularly when making future predictions on individuals or cohorts.
Many businesses look retroactively at the ratio of CLV to CAC (Customer Acquisition Cost) to gauge how well they invested their marketing spend in a general way. But there’s an opportunity to look in a more granular way at some of the drivers of CLV, which can better inform the overall marketing strategy.
Acquiring new customers gets most of the glitter and attention in marketing, but retention tactics can be more lucrative. And more granular segmentation can help ensure you’re not wasting resources chasing the wrong customers.
As Wharton Marketing Professor Peter Fader observed:
“Decisions about customer acquisition, retention, and development shouldn’t be driven by cost considerations — they should be based on future value…
“If we could see CLV as clearly as costs, all firms would get this. But because costs are so tangible and CLVs are a mere prediction, it’s really hard to get firms to adopt this mindset. But it’s the right one, and they should be working hard to become comfortable with CLV as the key driver to this kind of decision.”
Here are a few related cartoons I’ve drawn over the years: