Did you know that around 20% of your customers generally make up 80% of your sales?

It’s a lot to take in at first, but it shows that a large majority of your customers are not valuable to you in the long-term. In this blog post, we’ll explain how to make sure you’re focussing on the right customers and not wasting time and resources in places where you’ll never get them back.

Not all customers are created equal

We’re not suggesting you say ‘no’ to any sale, but the reality is some sales are worth more energy than others. This is the premise behind the concept of customer lifetime value; the metric that estimates the total revenue a business can expect to earn from a single customer account. The more repeat purchases, the more valuable the customer.

Here’s the mathsy bit…

You can calculate customer lifetime value by subtracting the cost of acquiring and serving a customer (marketing and admin), from the revenue gained from the customer over the lifetime of your business relationship.

The simplest way to calculate a specific customer’s lifetime value is to calculate the average revenue per customer per month (total revenue ÷ number of months since the customer joined) and multiply this by 12 or 24 to get a one-or two-year customer lifetime value.

This measurement doesn’t tell you much about a customer’s behaviour, however, which is where your real insights will come.

So then what do I do?

Well, you could try…

Cohort analysis. A cohort is a group that shares a trait or characteristic. By looking at cohorts instead of individuals, you can build a picture of peaks and troughs over the course of business relationship with groups of customers. The downside of this approach is that market changes, seasonality and the launch of new products, competitors or promotions could skew your results.

So there’s always…

Channel analysis. You may choose to focus on determining the total value of customers by channel, campaign or other media, such as coupons or website landing pages. This is a great way to measure the efficiency of your resourcing spend.

Ultimately, you need to decide what measure will work best for your business model.

Feels intense, should I really be going there?

Yes. Yep. Ja. Oui. Yes-sir-ee. Here’s why:

You’ll make smarter decisions.

Knowledge is power. And knowing who is most valuable to your business allows you to narrow your focus and target the customers most likely to spend up large with your company. Which brings us to reason #2

It’ll boost your ROI.

As we know from last week, marketing return on investment is the amount of revenue you generate from your marketing initiatives. Obviously, the goal is for this revenue to far exceed the money it took to attract and retain a customer. Personalisation and relevant targeting will get your message out to the right person or group of customers much more successfully, meaning more conversions and more money.

It’ll take sales to the next level.

By targeting the right customers, we can afford to push ourselves and our marketing efforts further. If we encourage a customer to buy one more product, one more time we move into the ‘one-percenter’ territory. That is, that extra, seemingly small marketing push that can take your sales to the next level. By targeting your customers correctly and focussing your efforts on the channels or individuals you know will be more likely to come back for more, your success rates will surely grow.

If you’re anything like us, you’ll go away, calculate your customer lifetime value and wonder how to get it higher. It’s an important thing to know and keep track of in the long-run – so that you know you’re spending time and money in the right places! If you want to really bump up your Customer Lifetime Value, we’ve got just the trick for you: Ontraport! It’s amazingly cost effective for all of its grunt: you can automate your customer journeys, remarketing and email campaigns, and track their results quickly and easily. We used to use Mailchimp but moved to Ontraport due to the fantastic functionality and exceptional support they deliver. Click here to check out how they could benefit you.