Tag Archives: lifetime value

Milk the Whale

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We created a LinkedIn group to utilize their platform and facilitate discussions centered on all things related to customers. A new site entitled Milk the Whale will be launched this month. More details to follow on the site as soon as it is launched. You can join the Milk the Whale Group here on LinkedIn.

Here is the welcome message for the new LinkedIn group.

Welcome – it’s Time to Milk the Whale
milk the whale
Thanks for joining. This group focuses on customers and revenue. How to get them, how to keep them, and how to “milk” them. Milking a customer may sound terrible but it is meant to get your attention. The point is that every business wants customers, wants to retain their customers, and wants to derive as much value from each customer as possible.

Definitions for the purposes of this group.

“Customer” – anyone your business/site interacts with regardless of whether or not they actually buy anything from you. They may directly or indirectly impact your revenue.

“Value” – the goal that you want to derive from a person or group of people.

Examples of “Customer” and “Value” to emphasize how broad these terms are:
- an individual (Customer) purchases a subscription (Value) to your service;

- an individual (Customer) buys goods/products (Value) from you;

- an individual (Customer) returns to your site to read articles thereby increasing your pageviews (Value) and potentially advertising revenue (Value);

- an individual (Customer) buys a product (Value) and loves your customer service telling everyone they can via Twitter becoming an evangelist (Value) for your business;

- a developer (Customer) uses your API, becomes and affiliate, and creates a site displaying your products for sale or other content and drives traffic to your business (Value);

The above illustrations are to emphasize the point that a “Customer” and “Value” can be defined by you depending on your business model.

Whether you run a business, market a business, am an affiliate of one/or many, or just wish to learn about customers are revenue, this is the place.

Lifetime Value

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Lifetime Value of a customer is and will continue to be more important. Everyone is familiar with customer acquisition. Customer acquisition is essentially obtaining a new customer. The cost of obtaining a new customer is called the Cost Per Acquisition (CPA).

If you spend $100 and you obtain 10 customers your cost per acquisition is $10 per customer. Determining the right cost per acquisition is obviously assuring you have made a profit. If you are an affiliate marketer and you are paid $30 per customer and it costs you $10 to get a new customer then you have profited $20. However it is not always the case that the initial cost per acquisition is less than the initial profit on a sale. It is possible to have an initial cost per acquisition of $20 on a $10 product. Why would you do this?

This is due to the fact that while the initial cost of acquiring that customer was $20 and you only made a $10 profit, the customer’s lifetime value is enough to cover your initial cost per acquisition and make a profit. That customer over time may make you an additional $50 in profit and therefore the higher cost per acquisition in the long run make sense. This is why you need to know the lifetime value of your customers.

Obviously is easier said than done, but it is possible and we do it for client’s everyday. More important than comparing the lifetime value to the initial cost per acquisition is being able to tie the lifetime value to the initial marketing campaign.

Here is why. in the example of customer acquisition if one marketing campaign was costing you $2 per customer and the other marketing campaign was costing you $1 per person you would obviously turn off the $2 dollar campaign and continue the $1 campaign.

However, now add the lifetime value of a customer and your decision-making process may change completely. If the $1 customers had a lifetime value of only $.50 and the $2 customers have a lifetime value of $8, then your decision is the exact opposite. You would turn off the $1 customers, potentially, and continue the campaigns yielding $2 customers, as it is worth the extra $1 per customer due to the huge disparity in lifetime value and overall profit per customer.

The key is tracking the lifetime value and even more importantly associating it to an initial marketing campaign to be able to make the best decision and obtain the best return on investment for your marketing dollars.