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The Measuring Stick: Customer Lifetime Value

Most of us know, generally, how many customers we serve over the course of a year. But have you ever stopped to think about the value of each one?

Customer Lifetime Value (CLV)

This is a way of measuring how much your customers are worth to your business over the time they buy your products and services. A well-run CLV program can help you identify which customers are worth your greatest attention – and can help you make the most of your marketing dollars.

Here’s how it’s done:

Average Annual Spend X Length of Relationship = CLV

If a customer typically spends $1000 a year / Customer stays 5 Years = $5000 CLV

Knowing this can help you justify marketing dollars over the long term. So often a business only examines the success of a campaign over the initial weeks that it ran, ignoring long-term benefits.

Tracking this the CLV helps you decide how to readjust your advertising so it can work better. For instance with regards to one of the events I market, which is a high-end conference, I know that through surveys it often takes an attendee two years to decide to sign-up. This means the advertising we ran last month may not pay-off for another 23 months. Understanding this concept will help you spend your money more wisely, and produce better results.

Of course you won’t know this unless you decide to start measuring your marketing efforts…


Slogans are short phrases that explain the main purpose of your product, service or brand.

New research shows that by clarifying your bands slogan, keeping it simple – and consistent, that it can significantly impact revenue.

This makes total sense, if you had no idea what Walmart was, you might think, as Paris Hilton famous stated “What do they sell there walls?” As it turns out though, thanks mostly to the millions of dollars they spend on advertising each month; almost everyone on the planet knows Walmart does not sell walls. What they do sell is just about everything else at a very low price. Their slogan is:


A new study from the Journal of Consumer Research revealed a fascinating aspect to consumer behavior with regards to slogans, especially the ones that reinforced the image of the brand.

“The experiment divided subjects into two groups. Half were exposed to brand names associated with saving money, like Walmart, Dollar General, Sears, Ross, etc. The other half were exposed to the slogans for those retailers, like Sears’ current motto, “The Good Life at a Great Price. Guaranteed.” When asked to visualize a shopping trip and describe how much money would be spent, the brand-exposed group spent an average of $94 vs. the slogan group, who spent just about twice as much: $184.”


The study found that exposing consumers to a “savings” message caused them to spend more than when they saw a message that reinforced a good lifestyle along with brand itself. So as a consumer I spend more at places promising me more in savings, who knew? I guess you don’t really save much, when you spend double. The study concluded that:

“Companies may be trying to attract customers with slogans associated with saving money, but in fact, this strategy may make consumers spend more money than they would if they had not been exposed to the slogans.”

I like this study for a few reasons:

1. It’s easy to understand.
2. It shows that simple is way better than a complicated slogan such as these:

“Dieting doesn’t work, Weight Watchers does.”
Wait a minute, isn’t a diet a way to lose weight by eating different than usual? Since when is Weight Watchers not a diet? I’m confused.

“It’s waaaay better than fast food, it’s Wendys.”
Wendy’s isn’t fast food, and Madonna is a great actress.

“Our Passion is food. Our secret is people”
Created by Moxie’s Classic Grill, sounds like something Hannibal Lecter might dream up.

3. They measured. Simple idea to test and BAM! doubled profits. we’ll all take that!

As a marketing person, one can’t escape the reality that the reason we study the details is so that our products and services reach their full potential.

This is essentially the answer to our question of “Why?”

If, in all our analytical glory, we miss the fact that our numbers mean nothing and they haven’t been used to improve the bottom line – then we’ve failed.

What’s the use of collecting all the data if we forget why we do it? Just to be showy? Prove how talented we are at gathering figures and information?

I recently read an interesting article about FBI Director Bob Mueller in TIME Magazine. He has made over an agency that’d gotten sloppy and lazy in how it was thinking and acting – “Mueller remade the bureau in his image, pushed out the old guard and hired more than half its present cohort. Mueller inherited 56 field offices, each a distant fiefdom run by a special agent in charge. Old-school Special Agents measured progress by arrests.”

So what does this have to do with marketing?

The FBI used to measure success by how many arrests it had made. To a non-law enforcement expert, such as me, this seems logical. But Director Mueller didn’t read the numbers the same way, he dug deeper challenging those agents who were arresting petty thief’s to stop padding their numbers and to do work that made a real difference to the community as a whole. Arresting car-jackers wasn’t nearly as important as thwarting terrorist attacks for instance.

“How are you measuring positive community impact?” Mueller would ask.

What a great question. Getting bad guys off the streets is good, but for the amount of time and resources it was taking to fight crime and then to see little return on this investment frustrated Mueller. He was basically asking what was the ROI on those arrests for the community? That’s what mattered most.

If you forget why you are collecting the data, I encourage you to get back to asking the question – “Why?” and figure out what matters most. In the long run this will help you and your company succeed.

Can You Trust Your Gut? The Measuring Stick: Cost Per Lead

So most of us always wonder just how much we should be spending when it comes to advertising budgets. What do we need to spend to get more leads? This metric is perfect for helping you understand how to budget your advertising.

Cost Per Lead (New Customer) This defines how much it costs to generate a new order. Here’s how it works:

Ad Spend / New Orders = CPL

$1,000 / 10 orders = $100 for a New Order

Simple. Easy. Useful.

Example: You have a company that did 50 jobs for a total of $250,000 in sales over the last 12 months. You had 100 calls in for estimates, or leads. You spent $10,000 on advertising. Dividing $10,000 by 100 we get a cost of $100 per lead.

How does that info help us? Try this. If we want to increase our sales this year to $500,000, how can we do it? We know that we sold 50 jobs for a total of $250,000 in sales, resulting in an average job size of $5000. Assuming our job size will remain unchanged, to reach $500,000 next year we need to sell 100 jobs ($500,000 / $5000).

We know that we closed 50 jobs out of 100 leads last year, for a sales ratio of 1 in 2. To sell 100 jobs this year; we’ll need 200 leads, an increase of 100. 100 leads x $100 = $10,000. Our new advertising budget will then need to be $20,000 to help us reach this goal.

I realize there are many factors that can come into play and this may seem a basic, but remember, marketers who understand and use these tools will outperform those operating in the dark.

Can You Trust Your Gut? The Measuring Stick: Return on Ad Spend

If you have ever asked the following question, “How much is my advertising making me?” Then this is the metric for you! According to a study from Seybold, almost 70% of companies can’t measure ROI.

Imagine not being able to tell if your investments were paying off, you would probably very quickly replace your money advisor with someone who could give you accurate updates. Well your advertising should be handled the same way.
Return on Ad Spend (ROAS) This is a Marketing ROI which measures how much revenue was generated for each $1.00 spent. It’s calculated this way:

Revenue – Ad Spend
—————————- = ROAS
Ad Spend

$1000.00 – $100.00
—————————- = $9 ROAS


$1000.00 – $500.00
—————————- = $1 ROAS

Companies need to exercise utmost caution while spending money on advertising. It could help you scale up your sales or it could be a mere waste of money. Either way, one needs to keep a tab on the money spent on ads.

Can You Trust Your Gut?

So if you are like the typical small business, most likely you are looking for some easy ways to track the success of your advertising?

One of my favorite ways, and easiest as well, is to track conversion rates.

Conversion Rate:

This is the percentage of people, customers, and clients who do something you want them to do.

So for instance if you run an ad in the newspaper, how many new orders/customers did you gain? And how much better/worse did you perform based on the previous month/year during this same period?

Advertisement ran for 1-week.
Generated an additional 100 calls.
Closed 33 deals.

Conversion rate = 33%

It really is that simple. Yes you really should keep track of this kind of data, once it is included with some other metrics you will be armed and ready to dominate that market.

I will say it again:

Barely half of all businesses measure their marketing efforts in any way.


Marketers who understand and use these tools will outperform those operating in the dark.

Winning is the name of the game, and you will win faster by measuring even at a basic level.

We all tend to have a love hate relationship with our advertising.

We know we need it. We hate spending money on it. And we love it when it works.

The money you invest in your marketing is precious. In order for you to maximize your advertising spending you need to know what worked and what didn’t. Marketing Metrics and formulas are tools that allow marketers to make better decisions about their advertising.

If you are unable to tell what leads and sales were generated with specific marketing efforts then you have no way of knowing what is working and what isn’t when it comes to your advertising.

You are not alone if you do nothing currently. A recent poll conducted by the Silicon Valley American Marketing Association among 3,500 of its members found that barely half measure their marketing efforts. Marketers who understand and use these tools will outperform those operating in the dark.

Let me say that again… Marketers who understand and use these tools will outperform those operating in the dark.

Need a little inspiration these days to keep you working hard?

Think you can’t be successful during a down economy? These businesses made it big by doing just that.

Businesses that started in a recession:

Hyatt opened its first hotel’s doors at the Los Angeles International Airport during the Eisenhower recession, 1957 to 1958.

Burger King the company began in 1954. During the recession of 1957, the company introduced its successful signature burger — the Whopper.

Microsoft began operations in 1975 amidst the oil crisis that rocked the country into a steep economic slump.

Sports Illustrated magazine was launched on August 16, 1954, at the end of a recession

MTV Networks brought something new to the music scene when it debuted in the economic slump of 1981

The iPod was rolled out just after 9/11 on October 23, 2001 in the midst of economic uncertainty and downturn.

Source: Sarah Caron @

Want a brand new one?

Groupon a “social commerce” company that offers daily discounts online for everything from manicures to meals, has been a big hit among bargain-hungry customers.

Groupon, which was introduced in November 2008, is currently available in 26 cities, including Seattle, New York and Washington.

So far, more than one million coupons have been sold to the 1.5 million people signed up for one of Groupon’s city-specific newsletters. And the company just announced that it had raised another $135 million in venture financing.

In addition to advertising heavily when the economy is soft, what else does one need to do?

Well outside of admitting that you could use a kick you in the pants every now and then, here are 5 things to think about:

Stop Whining
Never take your eye off the ball (your customers). Value them, and make sure they know it. Right now, someone in your field is having an awesome year. Why is it not you?

Get Back to Work
A bad market is a great excuse to be lazy. Don’t get caught in the ‘nobody’s buying mentality’. Focus on the core values of your company and share these frequently with customers, and prospects, through your advertising messages.

Sharpen The Axe
The toughest times always have carried with them the greatest opportunities. It can be difficult to see opportunities while you’re being bombarded with so much negativity everywhere. Never fail to negotiate for a better price from where you are buying media space. Use the phrase, “That’s not good enough.” This has worked for me so often that I never ever accept the first proposal. I barely even look at it.

Be Innovative
Deep discounts are not the answer they can’t be counted on when times are tough to shoulder the whole load. Your advertising messages should be crafted in a more creative manner. Remember, it is the bad and mediocre who quit in tough times. That leaves only the good and the best to compete for space in a shrinking market.

Don’t Give Up
One of the first things to happen in a tough market is that the bad and mediocre players just give up. Don’t let your business relationships wonder if you are next. Work on building better relationships with your customers. Learn their birthdays, kids names and even favorite teams, etc. – I personally like doing business with my friends, they probably do as well.

A negative economy can be a crisis situation for many businesses, but it was President Kennedy who reminded the nation

“When written in Chinese the word crisis is composed of two characters. One represents danger while the other represents opportunity.” It means opportunity for those who are prepared to take advantage and danger for those who aren’t.

The more visible you are, the more confidant your customers and prospects become. The more they are reminded of your legitimacy and staying power, the more they’ll be inclined to believe you’ll be there for them tomorrow.

Remember too that during any period of economic downturn your best customers become someone else’s best prospects. When you stop inviting them to do business with you, a more aggressive competitor may become much more attractive.

In a bad economy, there are many opportunities to expose your business to new customers that aren’t always possible in a good economy.

For instance, during down economic times you can get better deals on advertising. I was responsible for purchasing some billboards in Kansas City for a project in 2009. What I discovered was that for half the price of the previous year I got double the boards!

Don’t be afraid to address the bad economy in your advertising either. Travelocity aired a simple commercial to announce its Silver Lining Sale. In the first three seconds, you see the words, “We know times are tight.”

Wal-Mart is running an effective ad campaign. The commercials don’t say, “Hey, come on out. We’ve got electronics, clothes, sporting goods, prescriptions and more at a low cost.” Instead, the ads focus on very specific items and how much you’ll save over a year by purchasing these items directly from Wal-Mart.

The world’s largest retailer, according to, posted its best sales performance in nine months, with a 5.1-percent sales gain in February 2009 as a result.

Which character will your company be? Danger or Opportunity?

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