Marketing has long relied on a tried-and-true strategy of maximizing sales volume to maximize revenue growth. But increasingly, this approach is losing its edge. Competition is fiercer than ever, consumers are buying more cautiously, and acquiring new customers is increasingly costly. There’s never been a better time to drive sustainable, profitable growth by taking more targeted approaches to customer acquisition and retention. That’s why a familiar marketing concept is on the rise again: customer lifetime value (CLV).
While the concept of CLV has been around for decades, just a quarter of marketers are using it as a core metric in their work. Fortunately, recent technological advancements — particularly in AI and data analysis — have made it more accessible and actionable than ever before.
CLV’s advantage is that it recognizes a customer’s value beyond their first purchase and sees potential in the long term. If the Pareto principle, also known as the 80/20 rule, holds true for your business, it means that 80% of your revenue is being generated by 20% of your customers. It might be time for a shift away from acquiring just any new customers toward attracting and keeping customers the right customers, who drive profitability.
A first-party data foundation drives customer lifetime value
An understanding of your current high-value customers from your first-party data is the key to unlocking a CLV strategy.
Successful marketers know that a customer’s first purchase only offers a glimpse into their true potential. Instead of trying to convert every new buyer to become a high spender, focus on acquiring new customers most likely to have high lifetime value. From there, you can be purposeful about nurturing profitable actions, encouraging repeat purchases, and preventing churn to drive better, sustainable results.
Attract the right customers
By analyzing data from your most valuable existing customers, you can build an “ideal customer” profile to focus your new customer acquisition efforts. Google’s AI-powered tools help translate that data into action.
To get started, follow these three steps:
- Identify your high-value customers. Use first-party data to pinpoint your most profitable customers. What are their common interests, demographics, or behaviors? These insights are the building blocks for your ideal-customer profiles.
- Create a VIP list. Transform these insights into a Customer Match list. This curated list of your most valued customers can become the basis for your future acquisition efforts, as well as help you nurture your existing customers.
- Use the power of AI to optimize your marketing for CLV. Steer your Search, Shopping, or Performance Max campaigns to prioritize finding prospects similar to your most valuable customers with the new customer acquisition goal in high-value mode. It’s powered by value-based bidding, ensuring your marketing budget is laser-focused on driving the greatest long-term return on your investment, prioritizing new customers like those in your Customer Match list.
Turkish retailer Boyner is a powerful example of putting these steps to work. It faced a challenge: the new customers they were attracting weren’t spending enough over time to justify the cost of acquiring them. This meant Boyner wasn’t seeing the long-term profitability it needed to sustain its growth.
Boyner saw a 240% increase in new customers, 310% growth in customer lifetime value, and a 20% decrease in acquisition costs.
In response, Boyner shifted its strategy to leverage the new customer-acquisition goal geared toward high value. The results were significant: Boyner saw a 240% increase in new customers, 310% growth in customer lifetime value, and a 20% decrease in acquisition costs.1 By shifting its strategy to value-based growth and acquiring the right customers, the company laid a foundation for long-term profitability.
Cultivate your loyal customers
Once you’ve built a foundation for attracting high-value customers, it’s important to foster long-term growth within this base. Keep in mind this isn’t about indiscriminate cross-selling and upselling. In fact, cross-selling the wrong products to certain customers can hurt profitability.
The true path to sustainable growth lies in understanding the nuances of profitable customer expansion. Sustainable growth requires a strategic approach that focuses on encouraging valuable behaviors while avoiding those that damage the bottom line.
Not every customer is worth pursuing in the long term, so use your data to exclude those who frequently return products or shop only during sales, redirecting resources toward more profitable segments.
A 2% increase in customer retention can have the same financial impact as reducing costs by 10%.
During this stage, you can also use first-party data to discover the specific actions that encourage repeat business and drive long-term value — like app engagement or omnichannel shopping — and use Google Ads to leverage these insights into outcomes for your business. For example, data suggests that app users purchase 33% more often, have 3X to 5X higher lifetime value, and are willing to share twice as much first-party data.2 Tools like Web to App Connect can help increase app usage and drive more profitable customer actions.
Vivian, a health care hiring platform, identified that its app customers were driving immense value for the business and turned to Web to App Connect to make its web campaigns lead seamlessly to the brand’s app, tripling its conversion rates compared to web campaigns. According to Florence Su, VP of performance marketing at Vivian Health, “With Web to App Connect, we’re engaging high lifetime value customers who use our services more and complete more applications.”
While growing valuable customer behaviors builds a strong foundation, retention is the cornerstone of maximizing their lifetime value. Preventing churn is critical. In fact, a 2% increase in customer retention can have the same financial impact as reducing costs by 10%.
Re-engage your lapsed customers to continue amplifying the impact of your existing customer base. Google solutions like Performance Max include the option to optimize specifically for retention in the win-back and high-value win-back modes, both of which are currently in beta testing.
Take the long view
Building CLV isn’t just about maximizing today’s revenue; it’s about nurturing relationships that foster long-term profitability. That’s more achievable than ever, thanks to newer technology and AI-powered features in marketing tools. Whether re-evaluating your approach to new customer acquisition, refining your cross-sell and upsell strategy, or rethinking your retention and engagement campaigns, what will you do today to invest in the customers who will define your tomorrow?
