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FeaturedSpeakersMODERATOR:AndrewGaffneyEditorialDirectorDemandGenReport

MattZelenChiefCustomerOfficer

Act-OnSoftware

@Matt_Zelen

Agenda

• Overview of CLV/CAC ratio and why it’s important

• Understanding Customer Lifetime Value (CLV) & Customer Acquisition Cost (CAC)

• How to use the CLV/CAC ratio in day-to-day marketing decisions

Modern B2B marketers have

learned to coexist with chaos

Marketers are inundated with metrics that offer

countless ways to dissect and evaluate their campaigns

CLV/CAC: The Formula to Find ‘True North’ on Your Marketing

Map

Did your business make more money from a customer than it spent to

acquire that customer?

The Formula to Find ‘True North’ on Your Marketing Map

“The expected lifetime value of a customer represents the maximum allowable acquisition cost of that

customer. Then using those numbers, you can craft a marketing budget that is related to firm profitability versus some

fussier method of budgeting for marketing expenses.”

—Ruth Stevens, President, eMarketing Strategy

http://contentmarketinginstitute.com/2014/01/content-marketing-plan-focus-lead-demand-generation/“ “

CLV/CAC Can Help Answer Crucial

Questions

Are you finding your most valuable customers?

Are you targeting them effectively?

Are you making the most of the relationship once you win their business?3.

2.

Part I: Understanding CLV Customer Lifetime Value

The word “lifetime” is the one that matters when looking at what the term

really means to marketers. What is CLV?

Calculating CLV

Two Rules Will Get You 90% of The Way

There

These are common-sense marketing metrics. It’s important to keep them that way.

Consistency is key. Pick the right formula for your business and use consistently.

2.

How Should You Calculate CLV?

What is the average sales value of your first transaction with a customer?

How much do you typically make per year from a customer after the first purchase –including cross-sell and upsell revenue (if relevant)?

How long does a typical customer continue to do business with you? (The answer, ideally, will be in years – not months or weeks.)

3.

2.

How Do I Know if My CLV is Good or

Bad?

How much you spent to acquire a customer

Whether businesses like yours typically generates significant revenue from return/repeat customers

How much you typically spend to maintain these ongoing customer relationships3.

2.

What’s the Most Important Mistake to

Avoid When Calculating CLV?

The biggest mistake, by far, comes back to the word lifetime –

marketers who calculate customer value based only upon the value of

the first sale.

How Can I Use CLV to Improve Marketing

Effectiveness?

1. A complete view of CLV allows you to track the impact of your customer onboarding,

retention, upsell / cross-sell and loyalty programs


Effectiveness?

2. CLV can also be used to determine how much should

be spent on marketing investments

3. By identifying and comparing your “best” customers’ CLV to the average CLV for your customer base as a whole, you’ll be able to determine how much those “best”

customers are truly worth – and how much you should invest in acquiring

them.


Effectiveness?

Part II: Understanding CAC Customer Acquisition Cost

ThekeytodefiningCACisthewordacquisition

What is CAC?

Divide the amount your marketing organization spends on customer

acquisition during a specific period by the number of customers acquired

during the same period

How Do You Calculate CAC?

How Do I Know If My CAC is Good or

Bad?

What’s the best way to uncover this cost to value ratio?

This is where CLV/CAC once again enters the picture

(I promise we’ll get there!)

What’s the Most Important Mistake to

Avoid When Calculating CAC?

A lack of context when you calculate CAC and use this

metric to make decisions and assess marketing effectiveness.

Fine-tuning your email, landing pages, forms, and other touch points

Improving on-site ecommerce conversion metrics

Experimenting with tactics such as inbound and referral programs

3.

2.How Can I Use CAC to Improve Marketing

Effectiveness?

Part III: Mapping a Path to ProfitA Closer Look at the ”Compass Metric”

CLV/CAC=CompassQuotient(CQ)

One Number to Rule Them All

An Example of CQ

For CLV let’s assume a customer generates $50,000 in revenue during a three-year timeframe.

For CAC let’s assume it cost $15,000 to acquire this customer.

Using CLV/CAC (50,000 / 15,000) we get a

quotient of 3.33

7 Keys to Getting Your Bearings When Analyzing CQ

The CQ is (within reason) a self-contained marketing metric

The CQ is a historical metric rather than a predictive metric

The CQ offers a clear “redline” for identifying urgent and fundamental business problems

The CQ can’t tell you whether a business is (or will be) profitable

1

2

3

4

5

6

The CQ can include customer retention costs

… but including retention costs is not always important or helpful

7 The CQ offers powerful insights to assess marketing performance and support a marketer’s decision-making process

Insight to Impact: Using CQ in Day-to-Day Marketing Decisions

Using CQ in Day-to-DayMarketing Decisions

Build a More Valuable Customer Base


Minimize Risk Due to Customer Churn


Other Places to Apply CLV/CAC

The Most Useful Aspect of The CQ is its Flexibility

A few of the 4,000+ customers that can attest to this vision

We believe in making it simple for any marketer to master today’s customer journey.

We enable marketers to focus on strategy, creative, and customers -not the underlying technology.

www.act-on.com | #ActOnSW | @ActOnSoftware

Questions?

Contact Us:+1 (877) [email protected]

See a Demo:www.act-on.com/live-demo

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Q&A/SpeakersMODERATOR:AndrewGaffneyEditorialDirectorDemandGenReport

MattZelenChiefCustomerOfficer

Act-OnSoftware

@Matt_Zelen

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