Calculate Customer Lifetime Value

Calculate Customer Lifetime Value (CLV) and you have one of the most important metrics to measure for any growing company. It shows how long it takes to recoup the investment to acquire a new customer, the value of a customer relationship and provides a prediction of future profitability and revenue for forecasting.

Here are Customer Lifetime Values for some companies you know.

• AMAZON PRIME: $1,340
• AMAZON KINDLE: $1,233
• AMAZON: $790
• NETFLIX: $291
• STARBUCKS: $14,099

How to figure it out for your company? Take these 6 straightforward steps to calculate Customer Lifetime Value (CLV).

Step #1: Start with Annual Customer Value

Start by dividing your company’s total revenue over a specific time period (usually one year) by the number of purchases over the course of that same time period. You can also segment your customer base by best, good and bad customers. So you have Annual Customer Value by segment should you want to reward the best customers with a loyalty program.

Step #2: Identify the Life Span of the customer

What is the Life Span for your customers? For example, Starbucks is 20 years. As a result of this Life Span, Starbucks’ Customer Lifetime Value is high. Life Span is the average time the customers used in Step #1 stay with you. With Annual Customer Value and Life Span, you’ve established your foundation for Customer Lifetime Value. Now, it’s time to start sharpening the number.

Step #3: Apply Customer Retention Rates

To calculate Customer Retention Rate, you need to know three things.

1. Number of customers at the end of a period (E)
2. Number of new customers acquired during that period (N)
3. Number of customers at the start of that period (S)

We are interested in the number of customers remaining at the end of the period without counting the number of new customers acquired. Remaining customers can be calculated by subtracting N from E. To calculate the percentage, we divide that number by the total number of customers at the start and multiply by 100.

Customer Retention Rate = ((E-N)/S)*100

As an example, the Customer Retention Rate for Amazon Prime year over year is 90%.

This formula also takes into account businesses that have churn or cannibalization influencing retention rates.

Step #4: Determine Gross Margin per customer to calculate Customer Lifetime Value

This is how much profit each customer provides during their lifespan. Gross Margin is determined by total revenue minus the direct costs of producing the goods as well as investments into services for customer acquisition.

Step #5: Know the rate of discount

The Rate Of Discount = The interest rate used for calculating the present value of future cash flow. This number is usually between 8% and 15%. This value assumes prices aren’t going to increase in the immediate future. You can always look at high/low scenarios. However, a safe value to apply if you are unsure is 10%

Step #6: Calculate Customer Lifetime Value

Now, you’re ready to go. Annual Customer Value X Life Span X Retention Rate X % of Gross Margin X Rate of Discount = Customer Lifetime. Because you know the steps to get there, you know how much your customers are worth, their value in the future and your company’s ability to grow. That’s why it’s one of the metrics that matter for any business.

These steps follow the formula used by Neil Patel. Thanks, Neil for helping us better understand Customer Lifetime Value.

Do these steps help you with CLV for your company?

Video Marketing Case Studies

Video marketing case studies show the value of video online for brands. And offer proof that, even if you run a great advertising campaign, what good is it until it delivers the desired return.

Whether it is a boost in sales, an increase in leads or penetration into a new target segment.

Here are 10 video marketing case studies that prove ROI for brands

ABREVA: Found most sufferers get their first cold sore as teenagers.  Knowing that Gen Z and millennials are watching less TV than in the past, Abreva decided to lean into YouTube. Abreva created 119 different ads to customize the text based on a variety of interests. Viewers were then served up a relevant ad based on what they were watching. They saw a 41% lift in overall ad recall and a 342% lift in search interest among its target audience.

ADIDAS: Had always used a “phased block planning” approach to product launches — one campaign split into multiple, time-separated phases, all targeted at the same audience. The phases typically focused on awareness, education, and driving action. In need of a better way to launch its Nemeziz soccer shoe, the Adidas marketing team turned to YouTube’s video ad sequencing tool to move its target audience along a planned sequence of ads in a shorter amount of time — just a few days, for some people. Adidas saw a 33% lift in awareness, a 20% lift in ad recall, and a 317% lift in product interest.

CHILI’S: Decided to run a digital campaign to raise awareness of its 3 for $10 deal. The plan was to capture people’s attention using a made-for-digital 15-second creative spot that highlighted one of the meals from the promotion. They also saw a good opportunity to get people to sign up for My Chili’s Rewards, the brand’s loyalty program. The campaign ended up generating over 7,800 form leads, a valuable addition for a campaign focused on brand consideration.

COMCAST: Xfinity Mobile, a new type of wireless plan with millions of Wi-Fi hot spots designed to help consumers save money on data. They had a seemingly simple idea: give potential customers sticker shock by showing them how much their data actually costs them. For example, if someone was about to watch a five-minute sports clip, they might have been shown a sports-themed ad beforehand showing that the video they were about to watch would cost them $1.31 with their current cellular service provider. The brand experienced a 113% lift in brand interest, 3X increase in search, and has gained thousands of new customers since the campaign launched. The campaign won the YouTube Works Grand Prix and Best Media Work awards and Cannes Lions awards.

DORITOS: Told a funny, elaborate story for Doritos Blaze that built over time through a series of six-second bumper ads on YouTube with customization options. For example, someone who watched the introductory 15-second ad was later served up a six-second ad that naturally followed from the first one and reinforced the message. Someone who had chosen to skip the longer ad was instead served a six-second ad that reintroduced the product. The campaign led to a 19.3% lift in favorability, helping Blaze become the top-selling new single SKU launch for Doritos in the past five years.

HERSHEY’S: Had ahead of the launch of its limited-edition Hot Cocoa Kisses. While food brands often turn to TV to recruit celebrity chefs like Martha Stewart, Hershey’s headed online for inspiration. They featured top YouTube bakers like Rosanna Pansino, The Icing Artist, and Honeysuckle — generated a 22% lift in purchase intent. Together with a paid ad strategy, the campaign was key to driving more than $9 million in retail sales.

LIQUID PLUMBER: Noticed the rise of influencers performing grossly intriguing and humorous experiments. They created a video series that asked “Will It Clog?” Staying true to the formula, the videos featured down-and-dirty depictions of extreme clogs, while also evoking a sense of relief when the clog was cleared. The brand successfully increased both awareness and favorability by 38% and 40%, respectively.

LVMH: The French luxury goods company behind brands like Louis Vuitton and Givenchy, saw that people weren’t just looking for inspiration; they also wanted help deciding what to buy. This insight led the company to put in place a two-pronged approach to its video marketing. First, during Paris Fashion Week, the brand partnered with top YouTube creator Emma Chamberlain and supermodel Karlie Kloss to document their experiences exclusively on YouTube. The video generated over 1 million views. The second part of the approach makes it easier for video viewers to become customers. Louis Vuitton doubled down with an always-on YouTube TrueView for Action campaign — video ads with clickable elements that allow viewers to make purchases. The campaign has driven an 11X return on ad spend.

NEUTROGENA: Wanted to measure the incremental sales lift of a recent online video campaign for its makeup remover wipes.  it tapped into events like the World Cup, when people typically paint their faces to show support for their national team, or holidays like Halloween, when people use makeup as part of their costumes.  The brand built 21 different pre-roll ads, each layered with a message tailored to a specific audience and context, followed by the same closing line across all versions of the video. The videos outperformed CPG benchmarks by as much as 4X and drove close to a 14% lift in sales. The vast majority of the incremental sales (73%) came from buyers new to the brand.

UNITED: Had one big goal: “We want to inspire people to travel,” said Kajal Narasimha, Managing Director, Personalization & Engagement at United. For this campaign, United wanted to drive greater conversions by testing more personalized and engaging media. To achieve that, the team created a 15-second video featuring people on vacation in breathtaking places — sandy beaches, bustling markets, Alpine wonderlands — rewinding back to the one-step they all took to get there. Booking a flight. The strategy was a success. In just one month, 52% of conversions attributed to YouTube were click-through conversions directly from the ad, showing the effectiveness of this format in driving immediate website visits. 

Thanks to the team at Google for providing these video marketing case studies. Do they prove the ROI of video marketing to you? Could your brand be the next video marketing case study?

Website user experience

Website User Experience (UX) is understanding user behavior and improving satisfaction to gain more users, usability and a greater number of desired actions.

After all, what good is driving people to a website if the experience they have drives them away? What should you be looking at to gauge success?

Here are the top 9 metrics to measure website user experience.

1. Site Speed

47% of people expect a website to load in 2 seconds or less and 53% of mobile users abandon a mobile website that takes over 3 seconds to load. If your site speed is longer than 3 seconds, you’re losing visitors you didn’t even know you had. There are a number of free tools you can use to measure site speed. One is HubSpot’s Website Grader.

2. Visits

88% of online consumers are less likely to return to a site after a bad experience. If visits are declining, applying more traffic driving tactics might not be the answer. It might be better to make sure the people who are coming leave satisfied with a great website user experience.

3. Bounce Rate

The bounce rate is the percent of visitors who come to a website on a particular page and leave from the same page. The bounce rate is considered to be a key metric for website relevance. Because, if the site is relevant, visitors are likely to view more than one page. As a rule of thumb, a bounce rate in the range of 26% to 40% is excellent. 41% to 55% is roughly average. 56% to 70% percent is higher than average, but may not be cause for alarm depending on the website. Anything over 70% is disappointing for everything outside of blogs, newsletters or landing pages where all key action occurs on that page,  Regardless of what the bounce rate of a website currently is if it going up, it’s a signal that website user experience might need improvement.

4. Reviews and Ratings

Many online businesses, particularly e-commerce, offer visitors the opportunity to review and rate them. This not only enhances credibility because 84% of people trust online reviews as much as personal recommendations. But testimony and content from reviews also can increase search rank. If reviews are used, there is a high likelihood they will include feedback on website user experience. This should be viewed as valuable research. Companies like Shopper Approved and Trust Pilot offer customer review software to enable site reviews and manage them.

5. Site Search for Website User Experience

Site Search is a feature in Google Analytics Site that lets you understand the extent to which users took advantage of your site’s search function, the search terms they entered, and how effectively the search results created deeper engagement with your site. The search terms are often valuable input on what visitors looked for in the navigation. But they couldn’t find so they used the search functions.

6. Conversions & Conversion Rate

It’s important that a connection is made between a better website user experience and better business. By measuring conversions and conversion rates, you establish this link. Conversions occur when a visitor to your website completes a desired goal, such as filling out a form or making a purchase. Conversion Rate is the percent on actions based on total visits. Both are metrics that matter to equate user satisfaction with business results. In order to track conversions, conversion rate, and cost per conversion, you need to set up conversion tracking in your website analytics.

7. Average Order Value

Average order value (AOV) is the average dollar spend when a customer places an order on a website. If a customer can easily navigate and access website features that make information, education and buying a product easy, Average Order Value can increase. By increasing the average order value, businesses can directly impact their revenue growth.

8. Cart Abandonment Rate

23% of US online shoppers have abandoned an order in the past quarter solely due to a “too long/complicated checkout process”. For most checkouts, it’s possible to make a 20-60% reduction in the number of form elements shown to users during the default checkout flow. For websites that sell products online, the shopping cart is a key destination for user satisfaction.

9. Form Usage for Website User Experience

Great website user experience applies to every part of your website, including your web forms, in regards to accessibility, ease of use, and convenience. An online form with great UX is easy for your visitors to work though, simple to understand, and feels professional. When your form has all of these factors, you’re likely to see an increase in your number of conversions.

Do these metrics make sense to measure website user experience? Would you include anything else? Would your website benefit from a better user experience?

Marketing ROI

Marketing ROI is exactly what it sounds like: A way of measuring the return on investment from the amount a company spends on marketing. 

Marketing ROI benefits any company in the following ways:

• Justifies marketing spend
• Shows what to spend on
• Compares marketing efficiency with competitors
• Holds marketing people accountable

What sort of Marketing ROI should a business expect? 9 experts tell us what is a good Marketing ROI.

What is a good Marketing ROI?

According to Neilsen, the average marketing return on investment is $1.09. So what is a good Marketing ROI and why.

5:1 Ratio

‘A 5:1 ratio is in the middle of the bell curve. A ratio of over 5:1 is considered strong for most businesses. A 2:1 revenue to marketing cost ratio wouldn’t be profitable for many businesses, as the cost to produce or acquire the item being sold (also known as cost-of-goods-sold, or COGS) is about 50% of the sale price. Companies with higher gross margins (their COGS are LESS than 50% of the sales price) don’t need to achieve as many sales from their marketing before they become profitable. Therefore, the ratio is lower.” – Chris Leone, Web Strategies Inc.

Email marketing has the highest ROI

“Email marketing has the highest ROI of 675% when compared with any of the other major marketing methods. An email marketing campaign with a business’s website can be utilized to great success in order to increase sales and profits.” – Profitworks

Measure against the past

“One good way to set a “good ROI” benchmark for each marketing strategy is to look at the return from similar tactics you’ve tried in the past, as well as your current sales numbers. That information should help you create ROI benchmarks and goals that are realistic for your company. What’s considered a “good ROI” can vary based on the type of marketing strategy, your distribution channels, and your industry.” – Pamela Bump, HubSpot 

Start small and scale with success

“Many entrepreneurs make the mistake of blindly spending money, hoping that cash will eventually come back and multiply. Sometimes it works. Usually, however, the entrepreneur runs out of money because he or she didn’t consider ROI. Maybe you spend $500 on Facebook Ads. You track the campaign over several weeks and discover that leads from those Facebook Ads generated $10,000 in revenue. That’s a massive ROI. Now you know that Facebook Ads offer tremendous ROI. Next time, you might spend $2,000 on Facebook Ads to multiply the potential revenue.” – Jonathan Cronstedt, Medium

Test your way to a high Marketing ROI

“Almost anything can be measured using proper test design – but note that it’s prohibitively expensive to test everything with this method. With test and control groups, you apply the program or treatment that you want to measure to one component of your target buyer group, and not to another homogeneous part of that group.  All other factors being equal, you’ll be able to attribute any difference in buyer behavior between the two groups to the particular program.” Jon Miller, Marketo

Google Ads – $2 return for $1 spent

“According to research by the American Economic Association, businesses make an average of $2 in revenue for every $1 they spend on AdWords (Google Ads). However, many of them spend money on AdWords without knowing which search terms to target, what the best bid price is, or how to measure their revenue.” – MarketingProfs

KPIs with targets determine Marketing ROI

“ROI can certainly be seen as a “numbers game.” When marketers launch campaigns, they must be willing to identify the KPI’s of those campaigns in numerical terms. How much more traffic have they generated? What has been the increase in lead generation compared to that before a campaign has been in place? Companies can obsess on looking for a positive ROI in short order when, in fact, a campaign may be much longer-term before results can actually be seen. Find the balance. Set up the KPI’s, track results in real-time, eliminate those campaigns that are clearly not working, and allow those that seem to be getting results the time they need.” – Circa Interactive

LinkedIn has an average ROI of $9.59

“We looked at every paid LinkedIn touchpoint (e.g. paid social ads) across our customer base from 2017 through July 2018.  We use a full path attribution model in order to give revenue credit across the entire customer journey, including marketing that happens post-opportunity creation. We look at cost data and closed-won opportunities across the same 1.5-year time span. In other words, this includes costs for LinkedIn ads directed towards leads and current open-opportunities. The average ROI for a subset of our customers is $9.59.” – Andrew Nyugen, Bizible

Facebook ads lift search ROI

“Consumers who were exposed to Facebook ads were more likely to conduct a new search on mobile. The average lift for mobile search referral traffic was 6 percent. Small businesses saw the largest variance in the lift. when people saw Facebook ads in addition to paid search results, they were not only 13 percent more likely to buy online, they were also 79 percent more likely to seek out the brand’s physical store.” – Larry Kim, Wordstream

Do these experts help your understanding and expectations of Marketing ROI? Do you need help determining Marketing ROI for your business?

Data mining examples

Data mining examples show the process of discovering patterns and identifying rules in large data sets. Machine learning, artificial intelligence, statistics, and database systems are methods frequently used.

How data mining is applied across industries is vastly different. That’s because the goal of data mining is understand customer behavior, predict future behaviors and identify steps that accelerate the desired outcome. And customers behave differently depending on the industry.

To show how, here are 10 data mining examples for 10 different industries.

Banking data mining

In banking, the main objective is to use data mining is to extract valuable information from distinct customer data. That’s because the key strategy for a bank is to reduce costs and increase bank revenues. The customer, and their accounting and personal information, is the backbone for data mining examples of every bank. They collect data such as their purchase history, geo-location preferences and other behaviors. Bank that effectively use this data mining analysis to create right product for the right customer.

E-commerce

Many e-commerce companies use data mining and business intelligence to offer cross-sells and up-sells through their websites. One of the most famous of these is, of course, Amazon, who use sophisticated mining techniques to drive their, ‘People who viewed that product, also liked this’ functionality. By thoroughly studying and analyzing past data and behaviors, Amazon categorizes products depending on the probability of your purchasing the product.

Educational data mining

Educational Data Mining (EDM) is increasing rapidly as more and more education systems are going online. It has opened new areas like new computer supported interactive learning methods, tools-intelligent tutoring system and simulation games. This has created opportunities to collect and analyze student data , to discover patterns and trends in those data and to make new discoveries and test hypothesis about how students learn through online classes. The data collected from online learning systems can be aggregated over large numbers of students and can contain many variables that data mining algorithms can explore for model building.

Healthcare

Lab tests are often essential to enable a health care provider to decide how to treat a patient. Applying data mining helps doctors discover things they might otherwise miss within laboratory results. In one study, researchers looked at more than 600 urine samples and used data mining to classify patients by life expectancy based on characteristics of their urine. Taking this approach reveals instances where patients are sicker than they seem, allowing doctors to take prompt action.

Marketing data mining

Data mining in marketing is used to explore increasingly large databases and to improve market segmentation. By analyzing the relationships between parameters such as customer age, gender, tastes and lifestyles, it is possible to predict behavior in order to direct personalized loyalty campaigns. Data mining also predicts which users are likely to unsubscribe from a service, what interests them based on their searches or what a mailing list should include to achieve a higher response rate.

Mass merchandisers

Mass merchandisers are good data mining examples in action. Loyalty card programs are usually driven mostly, if not solely, by the desire to gather comprehensive data about customers. One notable recent example of this is Target. As part of its data dining program, the company developed rules to predict if their shoppers were likely to be pregnant. By looking at the contents of their customers’ shopping baskets, they were able to spot customers who they predict were likely to have a baby on the way. They then send them targeted promotions for diaper, wipes and other baby products. Their predictions were so accurate that Target made the news by sending promotional coupons to families who did not yet realize (or who had not yet announced) they were pregnant! 

Mobile phones and utilities data mining

Mobile phone and utility companies are data mining examples that predict ‘churn’, the terms used for when a customer leaves their company to get their phone/gas/broadband from another provider. They collate billing information, customer services interactions, website visits and other metrics to give each customer a probability score, then target offers and incentives to customers whom they perceive to be at a higher risk of churning.

Nursing

An analysis reveals a substantial portion of Medicaid patients are going to the ER more than 10 times per year. 2 or 3 trips to the ER is just a bad year, but more than 10 visits means that something has gone wrong. This prompts Medicaid employees to call these patients, take steps to increase their level of personal care at home and institute 24/7 nurse hotline to allow Medicaid patients to call in for medical help rather than going to the hospital. This lowers the costs of Medicaid ER visits by more than 20%.

Retail data mining

Retailers segment customers into ‘Recency, Frequency, Monetary’ (RFM) groups and target marketing and promotions to those different groups. A customer who spends little but often is handled differently to a customer who spent big but only once and some time ago. The former may receive a loyalty, up-sell and cross-sell offers, whereas the latter may be offered a win-back deal, for example.

Social media

A study published in the Journal of Advertising uses social media mining techniques to gauge users’ perception of a variety of common brand names. The study specifically looked at Twitter, examining tweets of brands in the following industries: fast-food restaurants, department stores, telecommunication carriers, consumer electronics products, and footwear companies. The researchers use the Twitter handles of each company (“@CompanyName”) as keywords to pull about ten million tweets for each of the twenty companies studied for results that are incredibly specific. For example, the study found 15.7% of tweets about fast-food restaurants are about promotions chains are offering. And, among cable companies, 66.7% of tweets about Comcast contain a negative sentiment.

Are these relevant data mining examples to you? Could you use guidance on data mining for your company