Guest Post By: Janet Holian, President, Vistaprint Europe

Growing the lifetime value of your customer base can seem like a daunting task but, in reality, a systematic approach to understanding your customers along with a step-by-step plan for new and repeat customer growth will make a positive impact on your bottom line.

What is customer base lifetime value? It’s the value your customer brings to the table in terms of total profit.

Profit, it is important to note, is a more effective lifetime value indicator than revenue since it provides a better window into the impact your customers have on your company goals.

Quantifying Lifetime Value

In order to quantify the lifetime value of your customers, be sure to look at profit per unit sold times average units sold minus costs by acquisition channel.  These three pieces of information should enable you to get a good idea of lifetime value.

And, if you look at this over a specific period of time, 24 to 36 months, you’ll be able to trend the lifetime value of your customer base over time – by acquisition source, first purchase, customer segment, etc. The goal is to understand and maximize lifetime contribution margin.

Typically, the size of the initial purchase is the single biggest driver of lifetime value and can be a solid indicator of the performance of your customer base. It is also a good cross-reference check to your lifetime value calculation.

Once you have calculated actual lifetime value, the next step is to figure out how to grow it by 1) acquiring more of the right customers, 2) encouraging repeat customers to purchase more and 3) getting customers to purchase more frequently over time. 

Growing Lifetime Value

In order to grow lifetime value, you first have to understand how much money you can afford to spend to acquire new customers and retain old ones. Then you must determine where the best place is to focus that marketing spend. 

For example, direct mail may cost more, but it might provide customers with a larger lifetime value. 

Paid search may also be more expensive than affiliate partnerships, but if the quality of customers acquired is better, it is worth the extra cost. 

Each organization will have acquisition channels that perform better than others. Understanding the mix and what provides the best lifetime as well as short-term results are important.

Once you have gained new customers, the first 90 days are the most important to establish a strong relationship. If you can get a new customer to make a repeat purchase during that timeframe, those customers are considerably more valuable over time than those that don’t make a repeat purchase until later.

Getting customers over the hump on the second purchase is something to take seriously. Remove barriers and provide offers with value. Whether it is a welcome kit, special offer, thank-you or giveaway, make the extra effort to convert first-time buyers into the multiple-time buyer category.

Another technique to consider is increasing the frequency of the purchase vs. the size of the purchase. Frequency may be better than a larger order in many cases.

Establish a dialogue with customers through surveys or requests for comment to make them feel more connected so they purchase more often. 

If you can segment your database, provide targeted offers specific to the needs of a specific group of customer.

No matter how you acquire them, if you can establish a strong relationship with customers, you can make them advocates for your organization. 

Don’t overlook the power of customer referrals. Ask customers for a referral, and thank customers who bring associates to your organization with a handwritten thank-you note – much more powerful than e-mail.

This helps in two ways – the more people talk about you as a company to friends and colleagues, the more likely they will want to purchase more from you. And – it’s the lowest cost and most effective acquisition channel available. Incentives provide the added push for many.

Consistency Is Key

As you are growing the lifetime value of your customer base, consistency in brand is key. At all times, customers should know who you are, know what you stand for and understand what they get when they interact with your organization.

Ensure that all of your offers and related materials are high quality and meet the same brand goals as your overall organization. 

Sending mixed messages to customers can distract and confuse them, causing limited response to new offers, referral bonuses or other means of interaction.

In summary, while it may sound overwhelming, don’t be intimidated by understanding the lifetime value of your customers. Defining your customer base and making smart decisions on acquisition and retention spends can improve lifetime value and enable bottom line benefits previously not attainable.

Janet Holian is President of Vistaprint Europe. Vistaprint (www.Vistaprint.com) is the small business marketing company.