Avoid the Pitfalls of Lifetime Customer Value

Over the last several years, much has been written about the benefits of measuring lifetime customer value (LCV). The theory is that if you can determine the revenue potential of all of your customers, you can direct your marketing resources to the accounts that have the highest potential yield and thereby maximize the ROI of your marketing dollars.

Understanding LCV can yield some great benefits. However, there are limitations to this practice that, if not avoided, can produce negative results.

Perhaps the biggest danger is over-investing in programs and initiatives that seek to capture profits only or primarily from the most active, highest spending customers. This ignores opportunities from customers with growth potential and from prospects and former customers who represent attractive profits if they can be cultivated into active customers.

It is said that companies will lose 50% of their customers in any given five-year span. Consequently, the need to focus your marketing efforts on new customer acquisition cannot be ignored. While using an LCV model will lead to an increase in profits from high-value customers, over-reliance on LCV can lead to a steady decrease in your pool of customers and overall profit if not balanced with customer acquisition.

It’s important to communicate with a wide variety of customers through all the various stages of the prospect/customer lifecycle. Having a range of marketing materials targeting different segments can significantly increase the ROI of your marketing efforts. With today’s database and print technologies, it’s never been easier.

Need ideas for creating the right target segments? Give us a call because we’re ready to help put your ideas in motion!

About Debbie Simpson

President of Multi-Craft in Newport, Kentucky.
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