Marketers Must Think About the Entire Lifetime Value of a Customer

Posted by Murray Sye

on Tue, Mar 11, 2014 @ 08:56 AM

Marketers Must Think About the Entire Lifetime Value of a CustomerIt's important to understand what a pre-transactional lead or contact is, and why they play a critical role in your business growth.

It's easy to spend your time focusing on making sales or promoting coupons to draw people to your site to immediately buy.

However, a lot of value lies in the ability to get to know someone before they become a customer.

By understanding what someone's needs are and being able to provide a solution (maybe it's just a quick tip and not even a product), people will begin to trust you and see you as an authority in your field.

Later down the road when they need more advice or are ready to make a purchase, they're going to turn to someone they trust first: you. Not only does this help extend your reach and raise awareness, but it also helps to generate loyal buyers. Putting in the extra effort to form a personal relationship from the start will result in more valuable customers in the long run. 

As marketers we want to think about the entire lifetime value of a customer (LTV) compared to the customer acquisition cost (CAC). Although it's ideal to have the lowest CAC as possible, the long term benefits of a higher LTV:CAC outweigh the small amount of money you would save early on. By initially investing more in the customer, you are setting your company up for loyal, returning buyers, rather than one time customers.

Let's look at Starbucks for example. Across 5 customers, the average spend per visit was $5.90 – seems pretty good for a coffee shop. But consider that the average customer lifespan for Starbucks is 20 years. Looking at how often a customer buys from Starbucks, that's an estimate potential of about $14,099! Thus, instead of acquiring more customers to spend $5.90 just one time, Starbucks focuses significant marketing budget on gaining loyal customers who will stick around and keep purchasing to surpass their acquisition costs and generate much more lifetime revenue.

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Flickr Photo Credit: by Chris McClanahan
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Written by Murray Sye

Murray is the CEO and Creative Director with the award-winning
Toronto HubSpot agency partner, WhiteSpace. You can
connect with Murray on Twitter, Facebook or LinkedIn.

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