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Arthur Middleton Hughes
VP / Solutions Architect
Customer Retention: how to measure it, build it and keep it.
San Francisco DMA
March 16, 2006
3:00 5:00
Marketing
Database
Analytic &
Campaign
Software
Customer Transactions
Marketing Staff -Access By Web
Inputs from retail, phone, web
How a Modern Database Works
Appended
Data
Modeling &
Analytics
Marketing Campaigns
Data Cleaning
Standardization
Website
Why retention is important: long term loyal customers
Buy more per yearBuy higher priced optionsBuy more oftenAre less price sensitiveAre less costly to serveAre more loyalHave a higher lifetime value
How to retain them
Recruit the right customers to begin withOnce you have them, segment them by lifetime valueCommunicate with them to build loyalty
What proves that communications work?
Manufacturer of indoor lighting productsCatalog sent to 45,000 contractorsPrevious policy: wait for the ordersTest: pick 1,200 customers, split into test of 600 and control of 600Two person pilot program build relationship with test customers to see the results
Change in the number of orders
Orders
0.82
1.12
Control vs Test Groups
Change in number of orders
Sheet1
82%
112%
Sheet2
Sheet3
Change in the Average Order Size
OrderSize
0.86
1.14
Control vs Test Group
Change in average order size
Sheet1
86%
114%
Sheet2
Sheet3
Total revenue gain: $2.6 million dollars
Revenue
0.7
1.27
Control vs Test Group
Change in total revenue
Sheet1
70%
127%
Sheet2
Sheet3
Communications work!
Building a relationship with customers can be highly profitable
Using a database to recreate the old family grocer is a winning strategy
Relationship marketing is the way to go
But, with millions of customers
Which ones should you spend resources on?If you communicate with everyone, you will not have enough resources to retain the very best.To select the best, you need to compute customer lifetime value
Lifetime
Value
Why we need Lifetime Value Analysis
We need to know the value of our customers, so as to properly target our sales and retention effortsWe need to discriminate among our customers to acquire and retain the best
Lifetime Value Analysis
Goal: Determine...
where to put your retention dollarsthe value of each retention strategywhere to put your acquisition dollarshow much to spend on acquisition
What is lifetime value?
Net present value of the profit to be realized on the average new customer during a given number of years.To compute it, you must be able to track customers from year to year.Main use: To evaluate strategy.
Examples of Profitable Strategies
User Groups
Newsletters
Surveys and Responses
Loyalty Programs
Customer and Technical Services
Membership cards and status levels
Event Driven Communications
Event driven communication:
Dear Mr. Hughes:
I would like to remind you that your wife Helenas birthday is coming up in two weeks on November 5th. We have the perfect gift for her in stock.
As you know, she loves Liz Claiborne clothing. We have an absolutely beautiful new suit in blue, her favorite color, in a fourteen, her size, priced at $232.00.
If you like, I can gift wrap the suit at no extra charge and deliver it to you next week, so that you will have it in plenty of time for her birthday. Or, I can put it aside so you can come in to pick it up. Please call me at (703) 754-4470 to let me know which youd prefer.
Sincerely yours,
Robin Baumgartner
Robin Baumgartner, Store Manager
Ridgeway Fashions Leesburg, VA 22069
Lets look at a retail operation
Before and after a loyalty program
LTV Before New Strategies
11.01
NumberResponseSalesAverage
OffersRateResponsesConversionSalesSaleSales
Currently100,000,0002.00%2,000,00030%600,000$260$156,000,000
Warehouse100,000,0002.10%2,100,00030%630,000$260$163,800,000
Increase100,00030,000$7,800,000
11.02
IncreasedProfitIncreased
SalesRateProfits
Annual Warehouse Benefits$7,800,00030%$2,340,000
Annual Warehouse Costs$3,500,000
Loss from warehouse$1,160,000
11.03
80%
IncreasedProfitIncreased
SalesRateProfits
Data Mart Benefits$6,240,00030%$1,872,000
Data Mart Costs$800,000
Gain from Data Mart$1,072,000
11.04
StepsCost
Warehouse Build$6,000,000
Over Three Years$2,000,000
Annual Maintenance$500,000
Customer Communications$1,000,000
Total$3,500,000
11.05
LifetimeLikelihood of Defection
ValueHighMediumLow
HighPriority APriority BPriority C
MediumPriority BPriority BPriority C
LowPriority CPriority CPriority C
11.06
LeadsConv.One TimeConv.Two TimeAnnualTotal
RateBuyersRateBuyersRevenueRevenue
Present500,00030%150,00050%75,000$200$15,000,000
With Customer Management500,00036%180,00060%108,000$240$25,920,000
Cost of Customer Management$4,000,000
Net Increased Return$6,920,000
11.07, 08, 09
Year 1Year 2Year 3
Retention Rate40%45%50%
Customers200,00080,00036,000
Visits Per Year1.41.61.8
Spending Per Visit$50$60$70
Revenue$14,000,000$7,680,000$4,536,000
Cost Percentage50%49%48%
Costs$7,000,000$3,763,200$2,177,280
Acquisition Cost $32$6,400,000
Total Costs$13,400,000$3,763,200$2,177,280
Profit$600,000$3,916,800$2,358,720
Discount Rate11.121.32
NPV Profit$600,000$3,497,143$1,786,909
Cum NPV Profie$600,000$4,097,143$5,884,052
Lifetime Value$3.00$20.49$29.42
Fig 11.07
Year 1Year 2Year 3
Retention Rate50%60%65%
Customers200,000100,00060,000
Visits Per Year1.622.4
Spending Per Visit$55$70$80
Revenue$17,600,000$14,000,000$11,520,000
Cost Percentage50%49%48%
Costs$8,800,000$6,860,000$5,529,600
Acquisition Cost $32$6,400,000
Database Costs$500,000$250,000$150,000
Loyalty Program$5.00$8.00$10.00
Loyalty Costs$1,600,000$1,600,000$1,440,000
Total Costs$17,300,000$8,710,000$7,119,600
Profit$300,000$5,290,000$4,400,400
Discount Rate11.121.32
NPV Profit$300,000$4,723,214$3,333,636
Cum NPV Profie$300,000$5,023,214$8,356,851
Lifetime Value$1.50$25.12$41.78
Fig 11.08
Year 1Year 2Year 3
Old LTV$3.00$20.49$29.42
New LTV$1.50$25.12$41.78
Change-$1.50$4.63$12.36
With 200,000 members-$300,000$926,071$2,472,799
Fig 11.09
10.11
ConversationsMessagesResponses
TotalActiveSentOpenedQuestions
Zap Registrant Surveys55167921553
Zap Registrant Non Buyers3002072095010
Buyers Invited to Training43017012300
CSR Survey2195142772368149
Corporate Billing Contract Usage1371414700
10.12
Likelihood of Playing in these events
SaturdayWednesdayTuesdayThursday
Gold LottoGold LottoOz LottoPowerball
Jane Smith95.00%2.00%2.00%1.00%
John Brown23.00%25.00%27.00%25.00%
Pat Johnson65.00%31.00%3.00%1.00%
10.13
Second Year Performance
ConversionOrders PerProfit Per
PercentCustomerCustomer
Team78.60%4.1$282.24
Non Team46.60%1.14$30.15
GC84.50%3.86$212.72
Non GC39.10%0.73$12.13
10.14
10.15
4.100
1.143
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
Team
Non Team
Team vs Non Team
Orders per customer
In the Second Year
3.857
0.727
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
Goal ClubNon Club
Goal Club vs
Non Club
Orders Per
MBD004223EC.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Gold Club
3.8572890026
0.7269219353
Gold Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Gold Club3.857
Non Club0.727
Sheet3
MBD00421B31.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Goal Club
3.8572890026
0.7269219353
Goal Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Goal Club3.857
Non Club0.727
Sheet3
Discount Rate Basic Formula
Market Rate of Interest...5%Assume Risk (Double rate)...10%Years = n Interest = iFormula: D = (1 + i)nCalculation of rate after 2 years: D = (1 + .10)2 = (1.10)2 = 1.21
New Retention Strategies
Provide all customers with a card or register their credit cardsBirthday ClubCommunicate with themGive them premiums if they shop a lotLets see what could happen
With New Strategies
11.01
NumberResponseSalesAverage
OffersRateResponsesConversionSalesSaleSales
Currently100,000,0002.00%2,000,00030%600,000$260$156,000,000
Warehouse100,000,0002.10%2,100,00030%630,000$260$163,800,000
Increase100,00030,000$7,800,000
11.02
IncreasedProfitIncreased
SalesRateProfits
Annual Warehouse Benefits$7,800,00030%$2,340,000
Annual Warehouse Costs$3,500,000
Loss from warehouse$1,160,000
11.03
80%
IncreasedProfitIncreased
SalesRateProfits
Data Mart Benefits$6,240,00030%$1,872,000
Data Mart Costs$800,000
Gain from Data Mart$1,072,000
11.04
StepsCost
Warehouse Build$6,000,000
Over Three Years$2,000,000
Annual Maintenance$500,000
Customer Communications$1,000,000
Total$3,500,000
11.05
LifetimeLikelihood of Defection
ValueHighMediumLow
HighPriority APriority BPriority C
MediumPriority BPriority BPriority C
LowPriority CPriority CPriority C
11.06
LeadsConv.One TimeConv.Two TimeAnnualTotal
RateBuyersRateBuyersRevenueRevenue
Present500,00030%150,00050%75,000$200$15,000,000
With Customer Management500,00036%180,00060%108,000$240$25,920,000
Cost of Customer Management$4,000,000
Net Increased Return$6,920,000
11.07, 08, 09
Year 1Year 2Year 3
Retention Rate40%45%50%
Customers200,00080,00036,000
Visits Per Year1.41.61.8
Spending Per Visit$50$60$70
Revenue$14,000,000$7,680,000$4,536,000
Cost Percentage50%49%48%
Costs$7,000,000$3,763,200$2,177,280
Acquisition Cost $32$6,400,000
Total Costs$13,400,000$3,763,200$2,177,280
Profit$600,000$3,916,800$2,358,720
Discount Rate11.121.32
NPV Profit$600,000$3,497,143$1,786,909
Cum NPV Profie$600,000$4,097,143$5,884,052
Lifetime Value$3.00$20.49$29.42
Fig 11.07
Year 1Year 2Year 3
Retention Rate50%60%65%
Customers200,000100,00060,000
Visits Per Year1.622.4
Spending Per Visit$55$70$80
Revenue$17,600,000$14,000,000$11,520,000
Cost Percentage50%49%48%
Costs$8,800,000$6,860,000$5,529,600
Acquisition Cost $32$6,400,000
Database Costs$500,000$250,000$150,000
Loyalty Program$5.00$8.00$10.00
Loyalty Costs$1,600,000$1,600,000$1,440,000
Total Costs$17,300,000$8,710,000$7,119,600
Profit$300,000$5,290,000$4,400,400
Discount Rate11.121.32
NPV Profit$300,000$4,723,214$3,333,636
Cum NPV Profie$300,000$5,023,214$8,356,851
Lifetime Value$1.50$25.12$41.78
Fig 11.08
Year 1Year 2Year 3
Old LTV$3.00$20.49$29.42
New LTV$1.50$25.12$41.78
Change-$1.50$4.63$12.36
With 200,000 members-$300,000$926,071$2,472,799
Fig 11.09
10.11
ConversationsMessagesResponses
TotalActiveSentOpenedQuestions
Zap Registrant Surveys55167921553
Zap Registrant Non Buyers3002072095010
Buyers Invited to Training43017012300
CSR Survey2195142772368149
Corporate Billing Contract Usage1371414700
10.12
Likelihood of Playing in these events
SaturdayWednesdayTuesdayThursday
Gold LottoGold LottoOz LottoPowerball
Jane Smith95.00%2.00%2.00%1.00%
John Brown23.00%25.00%27.00%25.00%
Pat Johnson65.00%31.00%3.00%1.00%
10.13
Second Year Performance
ConversionOrders PerProfit Per
PercentCustomerCustomer
Team78.60%4.1$282.24
Non Team46.60%1.14$30.15
GC84.50%3.86$212.72
Non GC39.10%0.73$12.13
10.14
10.15
4.100
1.143
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
Team
Non Team
Team vs Non Team
Orders per customer
In the Second Year
3.857
0.727
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
Goal ClubNon Club
Goal Club vs
Non Club
Orders Per
MBD004223EC.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Gold Club
3.8572890026
0.7269219353
Gold Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Gold Club3.857
Non Club0.727
Sheet3
MBD00421B31.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Goal Club
3.8572890026
0.7269219353
Goal Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Goal Club3.857
Non Club0.727
Sheet3
Effect of adoption of new strategies
11.01
NumberResponseSalesAverage
OffersRateResponsesConversionSalesSaleSales
Currently100,000,0002.00%2,000,00030%600,000$260$156,000,000
Warehouse100,000,0002.10%2,100,00030%630,000$260$163,800,000
Increase100,00030,000$7,800,000
11.02
IncreasedProfitIncreased
SalesRateProfits
Annual Warehouse Benefits$7,800,00030%$2,340,000
Annual Warehouse Costs$3,500,000
Loss from warehouse$1,160,000
11.03
80%
IncreasedProfitIncreased
SalesRateProfits
Data Mart Benefits$6,240,00030%$1,872,000
Data Mart Costs$800,000
Gain from Data Mart$1,072,000
11.04
StepsCost
Warehouse Build$6,000,000
Over Three Years$2,000,000
Annual Maintenance$500,000
Customer Communications$1,000,000
Total$3,500,000
11.05
LifetimeLikelihood of Defection
ValueHighMediumLow
HighPriority APriority BPriority C
MediumPriority BPriority BPriority C
LowPriority CPriority CPriority C
11.06
LeadsConv.One TimeConv.Two TimeAnnualTotal
RateBuyersRateBuyersRevenueRevenue
Present500,00030%150,00050%75,000$200$15,000,000
With Customer Management500,00036%180,00060%108,000$240$25,920,000
Cost of Customer Management$4,000,000
Net Increased Return$6,920,000
11.07, 08, 09
Year 1Year 2Year 3
Retention Rate40%45%50%
Customers200,00080,00036,000
Visits Per Year1.41.61.8
Spending Per Visit$50$60$70
Revenue$14,000,000$7,680,000$4,536,000
Cost Percentage50%49%48%
Costs$7,000,000$3,763,200$2,177,280
Acquisition Cost $32$6,400,000
Total Costs$13,400,000$3,763,200$2,177,280
Profit$600,000$3,916,800$2,358,720
Discount Rate11.121.32
NPV Profit$600,000$3,497,143$1,786,909
Cum NPV Profie$600,000$4,097,143$5,884,052
Lifetime Value$3.00$20.49$29.42
Fig 11.07
Year 1Year 2Year 3
Retention Rate50%60%65%
Customers200,000100,00060,000
Visits Per Year1.622.4
Spending Per Visit$55$70$80
Revenue$17,600,000$14,000,000$11,520,000
Cost Percentage50%49%48%
Costs$8,800,000$6,860,000$5,529,600
Acquisition Cost $32$6,400,000
Database Costs$500,000$250,000$150,000
Loyalty Program$5.00$8.00$10.00
Loyalty Costs$1,600,000$1,600,000$1,440,000
Total Costs$17,300,000$8,710,000$7,119,600
Profit$300,000$5,290,000$4,400,400
Discount Rate11.121.32
NPV Profit$300,000$4,723,214$3,333,636
Cum NPV Profie$300,000$5,023,214$8,356,851
Lifetime Value$1.50$25.12$41.78
Fig 11.08
Year 1Year 2Year 3
Old LTV$3.00$20.49$29.42
New LTV$1.50$25.12$41.78
Change-$1.50$4.63$12.36
With 200,000 members-$300,000$926,071$2,472,799
Fig 11.09
10.11
ConversationsMessagesResponses
TotalActiveSentOpenedQuestions
Zap Registrant Surveys55167921553
Zap Registrant Non Buyers3002072095010
Buyers Invited to Training43017012300
CSR Survey2195142772368149
Corporate Billing Contract Usage1371414700
10.12
Likelihood of Playing in these events
SaturdayWednesdayTuesdayThursday
Gold LottoGold LottoOz LottoPowerball
Jane Smith95.00%2.00%2.00%1.00%
John Brown23.00%25.00%27.00%25.00%
Pat Johnson65.00%31.00%3.00%1.00%
10.13
Second Year Performance
ConversionOrders PerProfit Per
PercentCustomerCustomer
Team78.60%4.1$282.24
Non Team46.60%1.14$30.15
GC84.50%3.86$212.72
Non GC39.10%0.73$12.13
10.14
10.15
4.100
1.143
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
Team
Non Team
Team vs Non Team
Orders per customer
In the Second Year
3.857
0.727
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
Goal ClubNon Club
Goal Club vs
Non Club
Orders Per
MBD004223EC.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Gold Club
3.8572890026
0.7269219353
Gold Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Gold Club3.857
Non Club0.727
Sheet3
MBD00421B31.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Goal Club
3.8572890026
0.7269219353
Goal Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Goal Club3.857
Non Club0.727
Sheet3
What is the proper computation period?
Which is the correct lifetime value? 1, 2, 3, 4, 5 or more years?They are all correct. Which you use depends on your product or service.Long lifetimes: banks, insurance, utilities.Short lifetimes: discount houses, package goods, catalogers.
Five Ways to Boost LTV with Database Strategies
Increase the retention rateIncrease the referral rate
Increase the spending rateDecrease the direct costsDecrease the marketing costs
How to use lifetime value
Compute a base lifetime valueDream up a new strategy. Estimate the benefits and costsDetermine whether your new lifetime value goes up or goes downDont undertake any new strategy until you can prove it will be successful
Using lifetime value to get budget approval
Database marketing budgets are usually carved from somewhere elseYou have to prove that you will make better use of the funds than the othersLifetime value can supply testable numbers that CFOs can understandBase your budget on solid numbers backed up by valid tests
What your new budget will buy
11.01
NumberResponseSalesAverage
OffersRateResponsesConversionSalesSaleSales
Currently100,000,0002.00%2,000,00030%600,000$260$156,000,000
Warehouse100,000,0002.10%2,100,00030%630,000$260$163,800,000
Increase100,00030,000$7,800,000
11.02
IncreasedProfitIncreased
SalesRateProfits
Annual Warehouse Benefits$7,800,00030%$2,340,000
Annual Warehouse Costs$3,500,000
Loss from warehouse$1,160,000
11.03
80%
IncreasedProfitIncreased
SalesRateProfits
Data Mart Benefits$6,240,00030%$1,872,000
Data Mart Costs$800,000
Gain from Data Mart$1,072,000
11.04
StepsCost
Warehouse Build$6,000,000
Over Three Years$2,000,000
Annual Maintenance$500,000
Customer Communications$1,000,000
Total$3,500,000
11.05
LifetimeLikelihood of Defection
ValueHighMediumLow
HighPriority APriority BPriority C
MediumPriority BPriority BPriority C
LowPriority CPriority CPriority C
11.06
LeadsConv.One TimeConv.Two TimeAnnualTotal
RateBuyersRateBuyersRevenueRevenue
Present500,00030%150,00050%75,000$200$15,000,000
With Customer Management500,00036%180,00060%108,000$240$25,920,000
Cost of Customer Management$4,000,000
Net Increased Return$6,920,000
11.07, 08, 09
Year 1Year 2Year 3
Retention Rate40%45%50%
Customers200,00080,00036,000
Visits Per Year1.41.61.8
Spending Per Visit$50$60$70
Revenue$14,000,000$7,680,000$4,536,000
Cost Percentage50%49%48%
Costs$7,000,000$3,763,200$2,177,280
Acquisition Cost $32$6,400,000
Total Costs$13,400,000$3,763,200$2,177,280
Profit$600,000$3,916,800$2,358,720
Discount Rate11.121.32
NPV Profit$600,000$3,497,143$1,786,909
Cum NPV Profie$600,000$4,097,143$5,884,052
Lifetime Value$3.00$20.49$29.42
Fig 11.07
Year 1Year 2Year 3
Retention Rate50%60%65%
Customers200,000100,00060,000
Visits Per Year1.622.4
Spending Per Visit$55$70$80
Revenue$17,600,000$14,000,000$11,520,000
Cost Percentage50%49%48%
Costs$8,800,000$6,860,000$5,529,600
Acquisition Cost $32$6,400,000
Database Costs$500,000$250,000$150,000
Loyalty Program$5.00$8.00$10.00
Loyalty Costs$1,600,000$1,600,000$1,440,000
Total Costs$17,300,000$8,710,000$7,119,600
Profit$300,000$5,290,000$4,400,400
Discount Rate11.121.32
NPV Profit$300,000$4,723,214$3,333,636
Cum NPV Profie$300,000$5,023,214$8,356,851
Lifetime Value$1.50$25.12$41.78
Fig 11.08
Year 1Year 2Year 3
Old LTV$3.00$20.49$29.42
New LTV$1.50$25.12$41.78
Change-$1.50$4.63$12.36
With 200,000 members-$300,000$926,071$2,472,799
Fig 11.09
10.11
ConversationsMessagesResponses
TotalActiveSentOpenedQuestions
Zap Registrant Surveys55167921553
Zap Registrant Non Buyers3002072095010
Buyers Invited to Training43017012300
CSR Survey2195142772368149
Corporate Billing Contract Usage1371414700
10.12
Likelihood of Playing in these events
SaturdayWednesdayTuesdayThursday
Gold LottoGold LottoOz LottoPowerball
Jane Smith95.00%2.00%2.00%1.00%
John Brown23.00%25.00%27.00%25.00%
Pat Johnson65.00%31.00%3.00%1.00%
10.13
Second Year Performance
ConversionOrders PerProfit Per
PercentCustomerCustomer
Team78.60%4.1$282.24
Non Team46.60%1.14$30.15
GC84.50%3.86$212.72
Non GC39.10%0.73$12.13
10.14
10.15
4.100
1.143
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
Team
Non Team
Team vs Non Team
Orders per customer
In the Second Year
3.857
0.727
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
Goal ClubNon Club
Goal Club vs
Non Club
Orders Per
MBD004223EC.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Gold Club
3.8572890026
0.7269219353
Gold Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Gold Club3.857
Non Club0.727
Sheet3
MBD00421B31.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Goal Club
3.8572890026
0.7269219353
Goal Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Goal Club3.857
Non Club0.727
Sheet3
How you got there
11.01
NumberResponseSalesAverage
OffersRateResponsesConversionSalesSaleSales
Currently100,000,0002.00%2,000,00030%600,000$260$156,000,000
Warehouse100,000,0002.10%2,100,00030%630,000$260$163,800,000
Increase100,00030,000$7,800,000
11.02
IncreasedProfitIncreased
SalesRateProfits
Annual Warehouse Benefits$7,800,00030%$2,340,000
Annual Warehouse Costs$3,500,000
Loss from warehouse$1,160,000
11.03
80%
IncreasedProfitIncreased
SalesRateProfits
Data Mart Benefits$6,240,00030%$1,872,000
Data Mart Costs$800,000
Gain from Data Mart$1,072,000
11.04
StepsCost
Warehouse Build$6,000,000
Over Three Years$2,000,000
Annual Maintenance$500,000
Customer Communications$1,000,000
Total$3,500,000
11.05
LifetimeLikelihood of Defection
ValueHighMediumLow
HighPriority APriority BPriority C
MediumPriority BPriority BPriority C
LowPriority CPriority CPriority C
11.06
LeadsConv.One TimeConv.Two TimeAnnualTotal
RateBuyersRateBuyersRevenueRevenue
Present500,00030%150,00050%75,000$200$15,000,000
With Customer Management500,00036%180,00060%108,000$240$25,920,000
Cost of Customer Management$4,000,000
Net Increased Return$6,920,000
11.07, 08, 09
Year 1Year 2Year 3
Retention Rate40%45%50%
Customers200,00080,00036,000
Visits Per Year1.41.61.8
Spending Per Visit$50$60$70
Revenue$14,000,000$7,680,000$4,536,000
Cost Percentage50%49%48%
Costs$7,000,000$3,763,200$2,177,280
Acquisition Cost $32$6,400,000
Total Costs$13,400,000$3,763,200$2,177,280
Profit$600,000$3,916,800$2,358,720
Discount Rate11.121.32
NPV Profit$600,000$3,497,143$1,786,909
Cum NPV Profie$600,000$4,097,143$5,884,052
Lifetime Value$3.00$20.49$29.42
Fig 11.07
Year 1Year 2Year 3
Retention Rate50%60%65%
Customers200,000100,00060,000
Visits Per Year1.622.4
Spending Per Visit$55$70$80
Revenue$17,600,000$14,000,000$11,520,000
Cost Percentage50%49%48%
Costs$8,800,000$6,860,000$5,529,600
Acquisition Cost $32$6,400,000
Database Costs$500,000$250,000$150,000
Loyalty Program$5.00$8.00$10.00
Loyalty Costs$1,600,000$1,600,000$1,440,000
Total Costs$17,300,000$8,710,000$7,119,600
Profit$300,000$5,290,000$4,400,400
Discount Rate11.121.32
NPV Profit$300,000$4,723,214$3,333,636
Cum NPV Profie$300,000$5,023,214$8,356,851
Lifetime Value$1.50$25.12$41.78
Fig 11.08
Year 1Year 2Year 3
Old LTV$3.00$20.49$29.42
New LTV$1.50$25.12$41.78
Change-$1.50$4.63$12.36
With 200,000 members-$300,000$926,071$2,472,799
Fig 11.09
10.11
ConversationsMessagesResponses
TotalActiveSentOpenedQuestions
Zap Registrant Surveys55167921553
Zap Registrant Non Buyers3002072095010
Buyers Invited to Training43017012300
CSR Survey2195142772368149
Corporate Billing Contract Usage1371414700
10.12
Likelihood of Playing in these events
SaturdayWednesdayTuesdayThursday
Gold LottoGold LottoOz LottoPowerball
Jane Smith95.00%2.00%2.00%1.00%
John Brown23.00%25.00%27.00%25.00%
Pat Johnson65.00%31.00%3.00%1.00%
10.13
Second Year Performance
ConversionOrders PerProfit Per
PercentCustomerCustomer
Team78.60%4.1$282.24
Non Team46.60%1.14$30.15
GC84.50%3.86$212.72
Non GC39.10%0.73$12.13
10.14
10.15
4.100
1.143
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
Team
Non Team
Team vs Non Team
Orders per customer
In the Second Year
3.857
0.727
-
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
Goal ClubNon Club
Goal Club vs
Non Club
Orders Per
MBD004223EC.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Gold Club
3.8572890026
0.7269219353
Gold Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Gold Club3.857
Non Club0.727
Sheet3
MBD00421B31.xls
Basic Data
Eurosport buyers January 1999 - June 2001
Life Time Value Study
MultiConv.OrdersSalesGrossGMPromoCost PerPromoPromosTotalContrib.% 2 YrAd
CustomersBuyersPercentOrdersPer. Cust.DollarsPer Cust$AOSMarginPercentCostMailingCountPer CustContrib.Per Cust.ContribRatio
First 3 month Performance
Team30,09312,34341.0%22,2740.740$3,852,825$128.03$172.97$1,584,87941.0%$40,520$0.4983,0472.76$1,544,357$51.3218.2%0.014
Non Team180,45838,34621.0%51,3800.285$3,505,384$19.42$68.22$1,657,12047.0%$225,718$0.47476,9532.64$1,431,404$7.9326.3%0.083
GC50,13222,12744.0%37,6250.751$4,973,628$99.21$132.19$2,110,58542.0%$69,454$0.47146,5172.90$2,041,135$40.7219.1%0.018
Non GC160,41928,56218.0%36,0290.225$2,384,582$14.86$66.19$1,131,41547.0%$196,788$0.47416,4902.60$934,629$5.8348.1%0.106
Avg Cust210,55150,68924.0%73,6540.350$7,358,208$34.95$99.90$3,242,00444.0%$266,240$0.47563,0072.70$2,975,765$14.1321.8%0.046
First 6 month Performance
Team26,48713,56351.2%29,7081.122$4,938,634$186.46$166.24$2,049,66941.5%$71,696$0.47153,8405.81$1,977,972$74.6826.5%0.019
Non Team159,38443,04727.0%64,4750.405$4,550,331$28.55$70.58$2,144,03247.1%$398,174$0.47845,6365.31$1,745,860$10.9536.3%0.112
GC45,21925,35756.1%51,9421.149$6,788,515$150.13$130.69$2,898,16442.7%$125,751$0.47267,3615.91$2,772,416$61.3128.8%0.024
Non GC140,65231,25322.2%42,2410.300$2,700,455$19.20$63.93$1,295,54048.0%$344,119$0.47732,1155.21$951,420$6.7655.8%0.163
Avg Cust185,87156,61030.5%94,1830.507$9,488,969$51.05$100.75$4,193,70244.2%$469,871$0.47999,4765.38$3,723,833$20.0330.9%0.063
First Year Performance
Team19,49613,26368.0%42,6262.186$7,303,357$374.61$171.34$3,030,34841.5%$124,705$0.46274,03014.06$2,905,643$149.0452.8%0.022
Non Team118,83245,05037.9%84,4050.710$6,400,160$53.86$75.83$2,980,69246.6%$709,566$0.461,538,11412.94$2,271,128$19.1163.4%0.142
GC35,33026,14274.0%76,9982.179$10,418,291$294.89$135.31$4,425,29442.5%$229,540$0.46501,68514.20$4,195,757$118.7655.8%0.028
Non GC102,99832,17131.2%50,0330.486$3,285,226$31.90$65.66$1,585,74648.3%$604,732$0.461,310,45912.72$981,014$9.5278.5%0.236
Avg Cust138,32858,31342.2%127,0310.918$13,703,520$99.07$107.88$6,011,04243.9%$834,271$0.461,812,14413.10$5,176,772$37.4257.7%0.078
Second Year Performance
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders Per Customer
4.0998169616
1.1429491433
Team vs Non TeamOrders per customerIn the Second Year
Goal Club
3.8572890026
0.7269219353
Goal Club vs Non Club Orders Per Customer in the Second Year
Two year
Team8,1956,43878.6%33,5984.100$5,883,979$718.00$175.13$2,420,04841.1%$107,120$0.46233,79328.53$2,312,926$282.24100.0%0.023
Non Team51,24223,90046.6%58,5671.143$4,644,979$90.65$79.31$2,150,69846.3%$605,678$0.471,299,44525.36$1,545,021$30.15100.0%0.167
GC15,64013,21784.5%60,3283.857$8,374,103$535.43$138.81$3,536,30642.2%$209,430$0.46455,76329.14$3,326,876$212.72100.0%0.032
Non GC43,79717,12139.1%31,8370.727$2,154,855$49.20$67.68$1,034,44148.0%$503,371$0.471,077,47524.60$531,070$12.13100.0%0.299
Avg Cust59,43730,33851.0%92,1651.551$10,528,958$177.14$114.24$4,570,74543.4%$712,797$0.461,533,23825.80$3,857,945$64.91100.0%0.087
Orders
Per Cust
Team4.100
Non Team1.143
- 0
Goal Club3.857
Non Club0.727
Sheet3
Using lifetime value to get budget approval
Database marketing budgets are usually carved from somewhere elseYou have to prove that you will make better use of the funds than the othersLifetime value can supply testable numbers that CFOs can understandBase your budget on solid numbers backed up by valid tests
Who is going to defect?
Besides LTV, you can develop a model that predicts which customers are most likely to leave.Putting that model with LTV you can refocus your entire retention strategyYou create a Risk Revenue Matrix
Focus on A and B: 44% of your customers.
Sheet1
Probability of Leaving Soon
LTVHighMediumLow
HighPriority APriority BPriority C
MediumPriority BPriority BPriority C
LowPriority CPriority CPriority C
Sheet2
Sheet3
Who uses LTV in marketing?*
DMA survey shows 52% of Consumer Only marketers use LTV.25% of B to B use LTV.49% Larger companies ($100 million or more) use LTV. 32% smaller companies use LTV65% plan to use LTV more extensively in 200670% use LTV to decide when to reactivate a lapsed customer.68% determine promotions by LTV
*DMA Survey 2005
Conclusion: you can do this
Create a lifetime value table for your customers.Put LTV into each customer recordUse LTV to determine your marketing strategyUse it to improve retention, cross sales, and profits
Break
Why you need customer segments
Customers are usually very differentCollege students, senior citizens, families with children, empty nestersThe same message to all may not work so well.Solution: create segments, and design a program for each segment.
How one retail store created 9 customer segments.
Segments differ from status levels
Segment Strategy
An ideal segment
Has definable characteristics in terms of behavior and demographics: for example, Retired CouplesIs large enough in terms of potential sales to justify a custom marketing strategy with appropriate rewards and budgetHas members who can be motivated by cost effective rewards to modify their behavior in ways that are profitable for your companyMakes efficient use of available data to support segment definition and marketing effortsCan be measured in performance, with control groupsJustifies an organization devoted to it: can be a single person, or part of a persons time, but there should be someone who owns each segment.
A valid segment strategy involves:
Communications to the segment (direct mail, email, on-location personal attention)Rewards designed to modify behaviorControls to measure the success of the strategyA budget for implementation of the strategySpecific goals and metrics for engagement: for behavior modificationAn organization that accepts responsibility for the segment
Segment action plan:
A roadmap showing what will happen when. Send each policyholder a birthday card and a policy review 45 days before their policy renewal date. A budget for the infrastructure and for the segment marketing plansAn organization chart that shows who is responsible for each segment Specific goals to be achieved with milestones for measurement of success
Using Clusters as segments
How one non profit measured success by cluster- Their best
Their worst in terms of response and contributions
Success from mailing only to the best, and not mailing the worst
$5 Million more in net gross revenue.
Multi-channel users are more loyal
Illustrative numbers from several case studies
Why the web is important to retention
Web customers are more affluentTheir average order size is 12% higher than phone orders. The cost of the web order is 16% lower than phone orders. Typical incentive offered is 5% off on any order over $50.Result: 11% of non web customers shift to the web every year.
Creating a club on the internet
A company selling sporting goods created an internet member club.When DB was built they learned that:Club members bought 11 times more than non club members.In two years, 81% of club members became multi-buyers.The club boosted retention
Club Members Retention
Goal Club
0.805
0.234
Conversion to Multi-Buyers after two years
Sheet1
Goal ClubNon Goal Club
80.5%23.4%
Sheet2
Sheet3
Cataloger Customer Retention
Miles Kimball sent 20,000 emails with three different catalogs, and 20,000 with the three catalogs alone.Those who got the emails bought 18% more than those who got the catalogs alone.
More sales = Higher overall retention levels
Retailer Customer Retention
Video retailer sent email newsletters to 170,000 customers for 6 months.Control group of 14,000 got no emailsRetail sales to test group was 28% more than to those without emails.
More sales = Higher overall retention levels
One Click Ordering
With the web we use cookies to say, Welcome back Susan. We keep her credit card on file if she wants so she can do one click orderingResult, compared to controls, is higher retention and annual revenue from those who have one click ordering available.
Essential to measuring the effectiveness of retention programs
Tests and controls
Why controls are essential
The sales force acquires new customersDatabase marketers create higher retention ratesHow do you prove this?Retention program effectiveness can only be measured using control groups
Every marketing promotion should always be a test
Test those who get the promotion against the performance of those who do not get the promotionIf you are sending birthday cards or a newsletter, select 50,000 who do not get birthday cards or the newsletter.Look at the controls spending rate, and retention rate.If there is no difference, your cards or newsletters are a waste of money.
What to measure
Attrition and retention of both groupsMigration upward and downward Incremental sales per program and per season Frequency of purchases Dollars spent per trip and per seasonNumber of departments shopped Number of items purchased Share of customers wallet
Illustration: Birthday Gift
Get customers to record their birthdays with their emails.On their birthday, send them a birthday Pizza CouponOne fast food restaurant offered a $10 birthday coupon to 215,000 customers. Of the coupons sent out, 86,612 were redeemed ($866,120) producing overall sales of $2,900,000 a sales increase of $2 million.
Live Agent
74% of shopping carts abandoned at checkout.Reason: customers have some question. They are unsure about the product, service, color, delivery, etc.Solution: put a live chat button at checkout time.Have live agents available to answer questions.Result: increased retention and sales
Caller ID
Use Caller ID to bring customers complete purchasing history on the screen before the agent begins talking.Result, she can talk to the customer as if she knew her.Result: Increased retention. Greater opportunity for cross sales.
What should you do to keep your customers?
Select loyal customers to begin with. Reward agents for customer loyalty.Set up a customer communications planCalculate LTV of each customerUse modeling to predict churn and to determine the Next Best ProductCombine LTV and NBP to run a proactive retention programOptimize your inducements
Books by Arthur Hughes
From McGraw Hill. Order at www.dbmarketing.com Contact Arthur: [email protected]
79.67%
24.82%
15.83%
1.52%
-21.83%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
5%
11%
28%
28%
28%
82%
112%
0%
20%
40%
60%
80%
100%
120%
Change in
number of
orders
12
Control vs Test Groups
86%
114%
0%
20%
40%
60%
80%
100%
120%
Change in
average
order size
12
Control vs Test Group
70%
127%
0%
20%
40%
60%
80%
100%
120%
140%
Change in
total
revenue
12
Control vs Test Group
Year 1Year 2Year 3
Retention Rate 40%45%50%
Customers 200,000 80,000 36,000
Visits Per Year 1.41.61.8
Spending Per Visit $50$60$70
Revenue$14,000,000$7,680,000$4,536,000
Cost Percentage 50%49%48%
Costs$7,000,000$3,763,200$2,177,280
Acquisition Cost $32$6,400,000
Total Costs$13,400,000$3,763,200$2,177,280
Profit$600,000$3,916,800$2,358,720
Discount Rate 11.121.32
NPV Profit$600,000$3,497,143$1,786,909
Cum NPV Profie$600,000$4,097,143$5,884,052
Lifetime Value $3.00$20.49$29.42
Year 1Year 2Year 3
Retention Rate50%60%65%
Customers200,000 100,000 60,000
Visits Per Year1.622.4
Spending Per Visit$55$70$80
Revenue$17,600,000$14,000,000$11,520,000
Cost Percentage50%49%48%
Costs$8,800,000$6,860,000$5,529,600
Acquisition Cost $32$6,400,000
Database Costs$500,000$250,000$150,000
Loyalty Program$5.00$8.00$10.00
Loyalty Costs$1,600,000$1,600,000$1,440,000
Total Costs$17,300,000$8,710,000$7,119,600
Profit$300,000$5,290,000$4,400,400
Discount Rate11.121.32
NPV Profit$300,000$4,723,214$3,333,636
Cum NPV Profie$300,000$5,023,214$8,356,851
Lifetime Value$1.50$25.12$41.78
Year 1Year 2Year 3
Old LTV$3.00$20.49$29.42
New LTV$1.50$25.12$41.78
Change-$1.50$4.63$12.36
With 200,000 members-$300,000$926,071$2,472,799
Probability of Leaving Soon
LTV
High
Medium
Low
High
Priority A
Priority B
Priority C
Medium
Priority B
Priority B
Priority C
Low
Priority C
Priority C
Priority C
0%
10%
20%
30%
40%
50%
60%
70%
80%
Retail Only
Catalog Only
Web Only
Retail & Catalog
Retail and Web
Catalog & Web
Catalog, retail, web
Retention Rate Year 2
80.5%
23.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Goal ClubNon Goal Club
Conversion to Multi-
Buyers after two years
100
118
90
95
100
105
110
115
120
Control
Test
100
128
0
20
40
60
80
100
120
140
Control
Test