The key to solving this challenge came from calculating their Customer Lifetime Value (CLV).
The lowly ranked Customer Lifetime Value metric is often an overlooked but very valuable metric for aligning the performance of various groups across an organization.
Retailers that get the most payback from loyalty programs are careful to measure vital metrics, like gross margin per customer and the lifetime value of a customer, which is tracked by using surveys and following forwarded emails to see who's recommending your store.
In The Dangerous Seduction Of LTV, venture capitalist Bill Gurley of Benchmark Capital pointed out ten pitfalls associated with one increasingly notorious metric: the lifetime customer value model (LTV).
The lifetime value of a customer is how much the customer spends over the long term (say a couple years).
In addition, the lifetime value of a customer who uses Fab mobile apps is about 2 to 2.5 times that of a web user.
So, instead of showing useless metrics like bounce rates, it focuses on metrics including revenue, the lifetime value of each customer, marketing attribution, and conversion rates.
The metrics that ranked lowest are far more interesting and valuable to strategic marketers: Cost per Customer Acquired (15%) and Lifetime Value of Customers Acquired (19%).
Mr. MICHAEL GOODMAN (Analyst, The Yankee Group): There's a lifetime value of that PS2 customer, and you're making money off of them, you're making royalty payments off of them.
Lifetime value is the net present value of the profit stream of a customer.
FORBES: The Dangerous Seduction of the Lifetime Value (LTV) Formula
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