Customer Acquisition and Lifetime Value

Venture for America CourseJuly 2, 2012

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Acquiring Customers

• Day 1 – product or service is ready, it launches, what do you do?

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Acquiring Customers - Process• Start with a plan:– Business objectives over time– Identify target customer– Brand positioning– Metrics for success.

• Marketing Channels*– Offline– Online

* http://www.timoshea.co.uk/marketing/122-marketing-channels-tips-a-definitive-list/

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Acquiring Customers – Metrics for Success

• Terms – CPM, CPC, CPL, CPA. • How much is a new customer worth?• CLV or LTV – Lifetime Value Calculations, based

on Contribution Margin • Impact of Loyalty/CRM programs on customer

LTV• Higher LTV impact on CPA

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Lifetime Value (also called Customer Lifetime Value or CLV)

• Acquiring Customers is expensive• Understanding the value of that customer drives

marketing and acquisition efforts• Key Metric is Contribution Margin – CM• CM = Sales – Cost of Goods Sold• Life Time Value (LTV) of a Customer is his/her total CM

over the life of his/her relationship with your company*

• Higher the LTV, more you can spend to acquire the customer or on a great customer experience

* Note – for this exercise we aren’t discounting back to reduce complexity

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Marketing Channels Offline• Events/Stunts• Trade Shows (B2B)• Give aways• Sponsorships• Partnerships• PR• Retail presence/Signage• Door to door/MLM• Outdoor• Direct Mail/Catalog• Radio• Television• Print – Magazines, Newspapers

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Marketing Channels Online• Online PR• Partnerships• Blogging/Thought Leadership/Sponsored Content (videos, podcasts)• Search Engine Optimization (SEO)• Search Engine Marketing (SEM) – 50% of all spending• Refer a friend/loyalty programs • Social Media – LinkedIn, Facebook, Twitter, YouTube, Pinterest• Local sites – Yelp, Angie’s List• Daily Deal Sites - GroupOn• Flash Sale sites – Gilt, Rue La La• Affiliate programs – Commission Junction• E-mail Marketing • Lead generation • Display advertising - Retargeting• Shopping sites• Mobile Advertising

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SEO/SEM

SEM

SEO

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Refer a friend/Loyalty programs

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Social Media

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Yelp, Angie’s List

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Daily Deal Sites/Flash Sale Sites

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Affiliate Marketing

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Email Marketing/Lead Generation

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Display Advertising/Shopping Sites

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Mobile Advertising

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Questions?

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Exercise – 15 minutes to prepare, 3 minutes to present

• These three businesses are launching:– Business A – a new foot massage service. Average Price is $50 per massage, CM

is $20, customer is projected to return 4X/year.– Business B – a new App for iPhone and Droid that calculates how much gas is

used while driving in real time. Price is $4.99 for the App, with 30% going to Apple or Google. Upgrades are free.

– Business C – a new anti-aging cream sold through retail stores and online both directly and indirectly (retail store websites). Expect 80% of sales to be from Wholesale, 20% from Retail. Wholesale price is $50, Retail Price is $100, product costs $25 all in to manufacture. Each cream lasts 3 months and half of new customers are expected to become ongoing repeat customers.

• Choose one and come up with up to 5 marketing channels to launch the business and why you chose them.

• For each of the three businesses above How much are you willing to spend to acquire a new customer based on a 3 year LTV?

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LTV Calculation

• Business A: CM x 4X/year x 3 years.• Business B: Price x .7 = CM, no repeat

purchase.• Business C: – Wholesale LTV – Price – COGS = CM, no repeat

purchase because no control over the customer relationship.

– Retail LTV – Price – COGS = CM x 4x/year x .5 attrition x 3 years