LTV. Lifetime value. It’s one of my favorite topics and I had the opportunity to get a pulse on how many enterprise marketers measure and actively use LTV during one of my talks at the Gartner Digital Marketing Conference.
Why I love LTV? (And why I think you should too.)
Mostly, I love LTV because I am not just an analytically minded marketer. I am a human.
I don’t transact completely rationally. And I DO remember the way that brands treat me over time. That plays out in how I choose to interact with them in the future. And brands that think of me as an asset – nay an annuity – tend to treat me better (if I am a good fit for them). In that way, LTV is inextricably linked from customer experience. I propose that brands who focus more on LTV than on transactional metrics give themselves the breathing room and perspective to think about customers beyond today’s average order value and ultimately deliver more compelling, rewarding customer experiences with commensurate revenue accumulation over time.
Take two runners for example – me and my fellow analyst, Julie Hopkins. On the surface, we are strikingly similar: similar age, education, job, etc. We both enjoy running and buy a lot of running shoes. But it turns out that Julie is both a more avid and skilled runner than I am. She burns through shoes faster than I do. Traditional, transactional marketing segmentation and efforts would use similar messaging, tactics and spend thresholds to go after both of us. After which, they might treat us alike.
But, if you built out some more detailed personas and did the simplest of LTV calculations on these personas … you would find that (using fictitious numbers and not accounting for costs as this stage) you could spend quite a bit more in dollars and effort to seek out, win over and retain a runner that looks, behaves and spends like Julie versus one like me.
That’s not to say that I should get a poor customer experience. Rather, that for the Julies of the world, our theoretical shoe brand can go out of their way to create unique experiences to attract or retain Julie and over time, perhaps even win a loyal advocate (increasing her LTV even more).
LTV enthusiasts will note that the above example is not a true or complete LTV calculation – it’s meant as a simple illustration to discuss this point. For more detailed discussion see the presentation from the conference ‘Achieving Balance: Marketing KPIs Driving Short- and Long-Term Growth. Using Annuity Thinking to Win.’
How many marketers are using LTV today?
Back to the data I mentioned. The session attracted over 200 marketers and 73 of them participated in our live poll. The results were not surprising – albeit a bit disappointing for an LTV-lover like me.
I asked if marketers were measuring LTV and if they actively used it in their marketing decision making. The possible responses were:
- No, we neither measure nor use LTV
- Partly, we measure LTV but we don’t consistently use it
- Yes, we measure LTV and use it as a marketing decision tool
- Almost, we are trying to codify an accurate measure of LTV
As you can see, most are not measuring LTV at all with just over 20% making an active effort to measure and use it in marketing.
Why should you care about measuring and using LTV?
Some of the most compelling brands in the world think about LTV all the time – whether they talk about it in these terms or not. Companies like Amazon, Danone Nutricia, Starbucks, Salesforce, Uber and more are making decisions not solely based on near term transactions. To be sure, they don’t ignore the short term – but they have a commitment to long term customer relationships that go beyond a one-time average order value and into the actual business KPIs they use to measure success (LTV, NPS, etc). This perspective enables them to balance the short and long term to accelerate business growth beyond those brands focused solely on the next transaction.
What’s stopping you from thinking of your customers as an annuity?