Calculating the Lifetime Value of a Customer

Last week, Marka and the FEI tribe discussed how tracking the results of their marketing activities could help them make more intelligent decisions in the future. This week, the tribe reconvenes to discuss how determining the lifetime value of a customer can help their business arrive at its ROI. Remember, fire = print.

The tribe convened in the conference room one morning to find Numo and Marka already huddled over a big sheet of paper.

“Uh oh,” Zoot remarked. “This looks like math.”

“Tracking the cost of each sales conversion will allow us to determine the ROI of our promotional activities and consequently make more financially intelligent marketing decisions,” Marka said.

“We start by figuring out the lifetime value of a customer using that data,” Numo explained, then scribbled on the paper:

“There we are!” Numo exclaimed. Few things thrilled him more than a good equation. “Once we’ve figured out the lifetime value of a customer, we can use this number to determine the lifetime value of a lead.” [He then added more scribbling:]

Numo was barely able to contain himself. “Once we know these numbers, and assuming we’ve been tracking the source of each lead and referral, then we can determine the ROI of each marketing promotion like this.”

“If little or no time elapses between lead and sale—with retail coupons, for example—then the ROI calculation is even simpler,” Numo continued.

Org quickly understood the financial logic of what his longtime friend was saying. “Over time, we’ll discover which activities are the cost-effective methods for acquiring sales and which aren’t. Numo, you really are a cost controller!”

“Thank you, thank you,” Numo said, taking a bow.

Today’s FIRE! Point
Tracking the cost of each sales conversion will allow your printing company to determine the ROI of your promotional activities and consequently make more financially intelligent marketing decisions in the future. Using this data, you can easily calculate the “Lifetime Value of a Customer (or Lead)” and, consequently, the ROI of each marketing promotion.

FIRE! in Action
Making It Measurable on the Web

For Babs Rangaiah, VP of global communications planning at Unilever, Internet marketing programs can be tracked just like any other campaign. Rangaiah records the amount of brand touches based on user views, shares, comments, etc. and measures this against an increase in sales to see if the effort yielded an ROI.

Next week: The FEI tribe discusses tracking ROI of sales activities.