CLV – customer lifetime value – is the average amount of revenue your business ears from each customer while they are buying from your business. When you track this metric, you can differentiate between a high-value customer vs. a one-off buyer vs. customers that make frequent lower-value purchases.
Why Lifetime Value Is Important
Lifetime value is about acquiring and retaining your business’s best customers to help grow your business and reach your KPIs. When you use lifetime value as a metric, you can target your loyal customers. They will help you achieve the most revenue and profit long-term by aligning your marketing activities and investments with these individuals.
What Is the Value of Your Customers?
For some e-commerce businesses, Google has suggested that approximately 80% of your total revenue is derived from only 20% of the customers. This shows how dependent you may become on a smaller group of customers that drive most of your business’s revenue.
Start figuring out your customer make-up by looking at historical data. Find out when the customer first made a purchase from you, get to know their past purchases, their actions and behavior, and start planning what you believe their future transactions may look like. When you know the lifetime value of your customers, it helps you figure out several factors when further planning your marketing activities.
It is a good idea to break down your customers by certain factors and then segment them further to determine how profitable your top purchasing customers are. These factors include:
- Recency: How long ago did they purchase from you?
- Frequency: How many transactions have they made, and how often do they buy on average?
- Value: Historically, how much value has the customer contributed to your company?
Once you have evaluated and found your top customers, you want to take steps to retain and grow this group. Retaining current customers is essential. When you increase these customer’s purchase frequency, it will also boost your profits.
The ongoing growth of this customer group is paramount for your business and can be achieved by acquiring similar customers.
Finding the Lifetime Value Metric in Google Analytics and Ads
CLV reporting in AdWords shows you historical data for higher-value customers for 12 months. It is found in the “tools” dropdown menu in the “measurement” section.
When accessed, the tool will show you demographic, device, and location information. It can be used for manipulating your campaigns to suit a particular service or product for a specific location or age.
After setting up the CLV as a metric, you need to start reporting on this monthly. This is going to help you find areas where you should increase your budget to target more customers that are likely to have a higher CLV.
If you are unsure how to do this or have multiple customers who need help with their PPC campaigns, outsourcing these services to a third-party is a smart move. This will allow you to focus on core activities while feeling confident your PPC efforts will produce the best results possible.