Cus­tomer life­time val­ue (CLV) has, tra­di­tion­al­ly, been under­val­ued as a met­ric by busi­ness­es and those respon­si­ble for mar­ket­ing them. After all, when was the last time you saw the com­bined life­time val­ue of cus­tomers men­tioned in a company’s annu­al report or used as a bar­gain­ing chip in merg­er and acqui­si­tion nego­ti­a­tions? All that may be about to change, how­ev­er, as the incred­i­ble advances in afford­able, real-time, big data ana­lyt­ics solu­tions, com­bined with dig­i­tal mar­keters’ per­pet­u­al need to opti­mize the effec­tive­ness of their online spend­ing, look set to ele­vate CLV to the sta­tus of Gold­en Met­ric for a range of com­pelling rea­sons.

Here are five rea­sons why cus­tomer life­time val­ue will become the “must-track” met­ric of 2015.

1. CLV Can Provide Detailed Insights Into Your Business

Defin­ing CLV, sim­ply put, involves cal­cu­lat­ing how much net val­ue a cus­tomer will gen­er­ate over the full span of their rela­tion­ship with a busi­ness. There are lots of detailed math­e­mat­i­cal equa­tions and com­plex for­mu­las to be found online offer­ing advice on how to con­struct such a cal­cu­la­tion so I won’t bore you with any of that stuff here.

What that CLV cal­cu­la­tion looks like (i.e., mod­el­ing the life­time val­ue of your cus­tomers) depends on your own indi­vid­ual busi­ness mod­el and the spe­cif­ic cus­tomer actions that cre­ate val­ue for your busi­ness. In this way, CLV allows adver­tis­ers to gain a greater under­stand­ing of their own busi­ness and devel­op mul­ti­ple strate­gies geared toward acquir­ing dif­fer­ent sorts of val­ued cus­tomers.

Take the exam­ple of a mobile phone com­pa­ny. One mar­ket­ing cam­paign might tar­get high-net worth cus­tomers with high-val­ue ser­vice pack­ages over a short­er con­tract term, while anoth­er cam­paign will tar­get cus­tomers seek­ing low­er month­ly charges and less func­tion­al­i­ty over a longer con­tract peri­od.

2. CLV Is Future-Facing

One of the most inter­est­ing and excit­ing things about CLV as a met­ric is that it is a for­ward-look­ing state­ment. Unlike com­mon­ly cit­ed met­rics like year-over-year rev­enue growth, CLV pro­vides much more than a snap­shot of cur­rent and past per­for­mance, it also offers insight into the val­ue a cus­tomer (or group of cus­tomers) holds for a busi­ness mov­ing for­ward.

This ele­ment of fore­sight can prove invalu­able in the plan­ning and devel­op­ment of future growth and mar­ket­ing strate­gies by deliv­er­ing a bet­ter view of the imme­di­ate and future health of the busi­ness and its rev­enues.

3. CLV Can Help You Optimize Your Marketing Spend

Know­ing the future val­ue of your busi­ness and being able to high­light the sort of cus­tomers gen­er­at­ing most val­ue over time allows you to go to mar­ket with a more sophis­ti­cat­ed and refined adver­tis­ing strat­e­gy.

Hav­ing a clear sight of the CLV of var­i­ous cus­tomer types allows you to tell your pub­lish­ers and affil­i­ates mar­ket­ing part­ners: “These are the types of cus­tomer you’re send­ing me right now and this is the val­ue of these cus­tomers to our busi­ness.” You can then demon­strate why you want to pay less or, alter­na­tive­ly, in the case of high-per­form­ing publishers/affiliates, tell them that you are will­ing pay a pre­mi­um for the acqui­si­tion of spe­cif­ic desir­able cus­tomer types.

Also, by pro­vid­ing CLV trans­paren­cy to your part­ners they in turn can opti­mize their own traf­fic in real time to earn greater rev­enue and align their goals with those of the adver­tis­er.

Today’s gen­er­a­tion of mul­ti-chan­nel track­ing solu­tions mean that when a busi­ness launch­es a new cam­paign, it is able to iden­ti­fy which adver­tis­ing place­ments or dig­i­tal chan­nels are most effec­tive, which are dri­ving val­ue and which are dis­play­ing a high-churn rate among their acqui­si­tions. Armed with data show­ing the influ­ence of indi­vid­ual ads or chan­nels on CLV, you can then iden­ti­fy oppor­tu­ni­ties to spend more aggres­sive­ly with spe­cif­ic pub­lish­ers, poten­tial­ly forc­ing some of your com­peti­tors out from prime mar­ket­ing space in the process.

4. CLV Can Inform Real-Time Payment Strategies

As the dig­i­tal mar­ket­ing are­na has evolved, so has mar­keters’ under­stand­ing of con­sumers’ online behav­ior, lead­ing to increas­ing­ly sophis­ti­cat­ed strate­gies and rela­tion­ships between adver­tis­ers, online pub­lish­ers, and affil­i­ates.

Let’s take the exam­ple of an adver­tis­er with pay­outs to pub­lish­ers for acquir­ing a cus­tomer who down­loads the advertiser’s app. In many cas­es, that used to be the end of the cus­tomer jour­ney for a busi­ness (i.e. the acqui­si­tion goals were sim­ply to have as many apps down­loaded as pos­si­ble).

How­ev­er, the real­i­ty is that most apps are opened once after down­load and ignored from then on. Pay­ing-out for a down­load alone begins to look like a bad idea.

Advances in track­ing tech­nol­o­gy now mean that we that we can track user actions in-app, beyond the ini­tial down­load, to bet­ter under­stand cus­tomer engage­ment and how it relates to CLV. Hav­ing iden­ti­fied the actions that con­tribute to a business’s CLV, these can be tracked in real-time and, there­fore, paid-out in real time too, pro­vid­ing pub­lish­ers and affil­i­ates with renewed incen­tives to dri­ve the cus­tomer-types you’re after.

5. CLV Can Help Shape Loyalty Programs, Retention Strategies

In addi­tion to CLV’s use­ful­ness in help­ing to devise suc­cess­ful cus­tomer acqui­si­tion strate­gies, it also has an obvi­ous role to play in help­ing to shape and val­i­date cus­tomer reten­tion and loy­al­ty pro­grams.

Acquir­ing cus­tomers can be an expen­sive busi­ness. Any­thing than can be done to reduce cus­tomer churn can have a major impact on the finan­cial health of a busi­ness.

For exam­ple, cred­it card oper­a­tors tra­di­tion­al­ly expe­ri­ence high churn due to “rate surfers” who change their card sup­pli­er every 12 months to lever­age the best inter­est rate deals. The clock is tick­ing on those cus­tomers from the minute they sign-on, decreas­ing their over­all CLV.

Ana­lyz­ing the real-time impact of reten­tion cam­paigns on CLV pro­vides cru­cial insights into the best ways to encour­age loy­al­ty and engage­ment among your cus­tomers.

Rec­og­niz­ing and cal­cu­lat­ing what CLV is to your busi­ness can, in turn, help to uncov­er how CLV is influ­enced by pro­vid­ing var­i­ous perks (e.g., gifts tokens, expe­ri­ence days, pri­or­i­ty tick­ets, exclu­sive con­tent, etc.) to improve cus­tomer expe­ri­ence and encour­age greater lev­els of reten­tion.

Do you con­sid­er cus­tomer life­time val­ue to be a must-track met­ric?