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Why Place So Much Emphasis On Customer Lifetime Value?

December 17th, 2012 by David Whitehouse
 

Customer lifetime value plays an extremely important part in direct marketing (and digital marketing). A great example highlighting the importance would be a restaurant. If you don’t know the value of a customer, you tend to measure against the value of the sale – with restaurants this can often be quite a low amount – you could be talking £10-15 per head in gross profit.

Once you take into account overheads, the amount you may be prepared to make that sale might only be £1-2 – if you have a response rate of say 2% you’re looking at reaching 1,000 people for a cost of £40 per thousand – you’d struggle to find anywhere that will let you advertise this cheap.

But what if you knew the customer came back 5 times on average? Or even if they were likely to spend over £500 with you over the next 5 years? Suddenly you realise that you can actually spend £10-20 to acquire that first sale, sure you’d struggle at first, but very quickly you’d have a huge customer base bringing in a lot more money.

That’s why direct marketers place so much emphasis on customer lifetime value – acquiring a customer for one sale is expensive. Engineered Marketing specialise in attracting the types of customers that will continue to buy from you.

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