"Maximizing Ad Spending and Creating Loyal Customers: Adopting a CLV Model"

Sales and marketing professionals understand the continual pressure to reach and convert new customers to a product or service and how easier it is to keep a happy customer than win new ones. This seems to be a trend that leading brands are taking to heart, with Reuters dubbing ‘lifetime value’ as Silicon Valley’s new buzzword. This article discusses why brands must adopt a customer lifetime value model as one of their primary organizational KPIs. It explains what a CLV model is and how it is calculated, and the strategic changes it brings to the company in terms of organizational KPIs, acquisition and retention goals, and attribution models.

A customer lifetime value (CLV) model is a measure of the total potential value a customer brings to an organization once they are acquired. It is calculated using the formula: Purchase Frequency (PF) x Average Order Value (AOV) x Gross Margin (GM) x Customer Lifespan (CL) x Number of New Customers. This model must be embraced as a factor in strategic planning, culture and key performance indicators (KPIs) that drive decisions.

The adoption of a CLV model as a primary KPI has several strategic changes. It aligns organizational KPIs with customer success, brings greater alignment between acquisition and retention goals, and leads to a more holistic and multi-touch attribution model. Doing this requires commitment from many parts of the organization, and may need an iterative approach with an MVP in mind.

Organizations must adopt a customer lifetime value model as one of their primary organizational KPIs. This shifts the company’s strategy and direction in terms of organizational KPIs, acquisition and retention goals and attribution models, which all contribute to maximizing ad spending and creating long-term, loyal customers.

Originally reported by Martech: https://martech.org/north-star-goals-for-category-leaders-customer-lifetime-value-model/
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