4 Steps to Execute the ‘Not So Secret’ Formula for a Competitive Advantage

The lifetime value of customers should guide your marketing decisions.

Savvy marketers understand the lifetime value of a customer.  As a result, they build their acquisition formulas around long-term success, not one day revenue.

To gain a competitive advantage, follow this “not-so-secret” four-step formula:

Step 1: Determine the lifetime value (LTV) of your customer.

LTV is the forecast of a customer’s worth over the lifetime of your relationship:

  • Multiply the average revenue collected from a customer (including initial sale, continuity, upsells, etc.) over a customer’s life span.
  • Understanding LTV is critical to help determine the best business model for long-term success.

Step 2: Calculate the impact of raising and lowering your cost-per-acquisition (CPA).

CPA measures the aggregate cost to acquire a customer:

  • You can acquire a small number of customers at an initial profit, a larger number at a breakeven, or a massive number at a slight initial loss.
  • If your LTV is high enough, it’s a case for taking a short-term loss in exchange for more scale and greater long-term profits.

Step 3: Test your assumptions.

Even if your plan makes sense on paper, go further:

  • Test and monitor all assumptions to avoid surprises.
  • Iron out any kinks before you expand.

Step 4: Execute.

After analyzing the numbers, take the next step:

  • If you conclude that the long-term approach will grow your business, implement that plan.
  • Continue to monitor the numbers to ensure your assumptions remain valid.

The lifetime value of customers should guide your marketing decisions, which may mean acquiring a lead at a small short-term loss in exchange for a big long-term gain.

Marketers who take the long view typically grow faster and achieve optimum results.

 Source:  The Marketing Insider, reported by Drew Kossoff