Influencer MarketingTools, Tips, Tricks & How-Tos

[FREE Tool] How to Calculate The Full Value of a Customer: LTV + Influence

By January 13, 2015 No Comments

“Social” is sexy. Just about everyone from big firms down to your mother’s cousin’s sister’s husband’s best friend has some sort of tip, trick, secret, or strategy to directly drive sales, traffic, impressions etc.–with methods wildly varying in sophistication. And yet, most people (and brands for that matter), cannot fully grasp social value. It extends far beyond marketing ploys and tactics in attempts to amass clicks and impressions. It’s a crucial component of calculating the value of your customer.

There are actually two parts to calculating the full value of a customer. Currently, most marketers and business owners only focus on one because they can’t measure the other.

Let’s pretend this is your customer:

how to calculate the real value of a customer: LTV + Audience

How do you measure the value of this customer? Monies? Sort of.

The longer answer: the total amount of their purchases over the course of your relationship should be greater than the value you expended to acquire their business. This is considered a customer’s Lifetime Value (LTV), and it has become an increasingly relevant topic within the past decade. It’s now a concept used by both big and small businesses alike as they seek out new channels to attract customers.

What can LTV do exactly? Adobe Digital Index analyzed 33 billion visits to 180 online retail websites in Europe and the United States from April 2011 to June 2012. The implications from this analysis indicate that retailers should shift marketing spend to increasing revenue from existing customers.

How to Calculate The Full Value of a Customer: LTV + Influence

Although shoppers generate the most site visits and consume the bulk of marketing budgets, they do not generate proportional amounts of revenue. Rather, returning and repeat purchasers deliver over 40% of the US revenue even though they only comprise 8% of the visitors.

How to Calculate The Full Value of a Customer: LTV + Influence
The conversion rates of returning and repeat purchasers were five and nine times, respectively, the conversion rate of shoppers.
LTV is both a number and a concept. Marketers and businesses use it to determine the cost of obtaining a new customer and the estimated value of retaining a current customer. This is very much a B2C standpoint. A few are B2B. But what about the other part of the equation? C2C? Consumer to consumer? As it turns out consumers have a massive and important impact on each other (cue “duh!”), something marketers have always known, but could not easily quantify. It’s time to quantify.

Here’s an interesting story:

A long time ago [2009], in a galaxy far, far away [Massachusetts]…two childhood best friends embarked on a delicious frozen treats journey. Amanda and Drew created the first ever frozen yogurt bar. Their healthy treat has come a long way since their first delivery in March 2011. The company has since sold more than 90 million bars — which are available in more than 14,000 stores nationally (as of september 2014). Their growth has been meteoric. You can learn more about Yasso’s influence marketing campaign with us here.

It was a pleasure working with Yasso last year. We thoroughly enjoyed getting to know the product, and we’re willing to bet the 6455 purchases our campaign drove were also thoroughly enjoyed. Read more about the case study here.

Why is this significant? 6455 purchases is significant because it spawned from the recommendations of 1000 influencers. This is a hard-number measure of the value of social influence.

Can the social influence of an individual align with LTV?

The concept of LTV is a value independent of an individual’s impact on their social network. On the flipside, social influence has always existed without calculation (until now). It exists without the marketing, the product, the business, etc. It’s pure interaction in a community.

Because these are two disparate values that directly contribute to your bottom line, the true value of your consumer should be their sum. Still with me?

Imagine your customer spends $200 before they go away. This makes their LTV = $200. Now imagine their social interactions bring in 2 purchases at $400 each. This customer actually contributes $1000 to your business. Your “biggest” customer, may not be your biggest spender.

Knowing the sum of lifetime value and social influence can be useful. How? You can determine, from the highest combined scores, how much of your revenue comes from LTV vs. social influence–and particular trends in their occurrence in your customer base.

But let’s be a little more action-oriented about this.

Step 1: Have you calculated your customer LTV?
Download Mavrck’s Customer Lifetime Value Calculator
Step 2: Now that you have that score, find your influencers.
Step 3: Nurture the heck out of these customers and keep them happy.
It helps also to examine your retention rates and churn risk. Try something like this:

A customer has an LTV of $10 and an influence value of $90. According to your LTV analysis, the chance they disappear is 50%. Oh no! What steps do you take? First, see how much is at stake, which is a total of $100. Then, because 50% of the time, that $100 is disappearing, this customer is $50 ($100x.50) at risk. On paper, it’s worth
$49 to retain this customer. In reality, you may just want to send an email, or maybe send a gift basket full of fresh baked cookies with a singing bear and Belgian chocolates.

…on second thought, email sounds good.

calculate the lifetime value of a customer