When invited to ask us anything, one of our blog readers asked:
“What do you think is the best way to calculate customer lifetime value?”
Read on for my response and a deeper understanding of how to valuate the customers created by your event marketing.
Hi Chris,
What do you think is the best way to calculate customer lifetime value?
Xxxx
Hi xxxx –
I wrote about the basics in this blog post: https://portma.com/resources/articles/measuring-customer-value-in-event-roi-models/
Admittedly, that is a simplified explanation. I always suggest that people start very simple (like the calculation above) and then see how actionable the resulting figure is in the context that caused you to ask the question in the first place. If warranted, you can dig deeper.
Taking the analysis further in order to be more precise typically has to do with determining the consumer period of loyalty. That is dependent upon the industry category. For example, how often someone switches brands of men’s razors versus deciding to grow a beard. There is often industry research already available. At other times, we are commissioned to develop and conduct custom studies to obtain loyalty data.
Once you know the period of loyalty, the modeling deals with questions about annualized return. That includes decisions and questions like the following:
- Should we be considering revenue or profits?
- Should we take into account cost of capital for future revenue or account for inflation when looking at future revenue?
- Does the purchase cycle include trends toward increased or decreased consumption or purchase frequency, and how does this impact my expectations about future revenue?
- Should we consider regional price variation or use overall averages?
…
Those are the key considerations. As you get deeper into the subject, additional questions present themselves. On the other hand, many of our clients find it perfectly acceptable to do a back-of-the-envelope estimate to address the short term needs.
For the teams at PortMA, this often comes in the form of ROI modeling, so we can afford to look at it from a variety of perspectives and different levels of specificity. Your situation may be different.
I hope this helps. If it makes sense for us to talk, please feel free to reply and we can find a time to chat. Always happy to talk about these types of things.
Warmest regards,
Chris
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