In this article we’ll cover the two most important metrics for mature marketing funnels in 2021, lifetime value and churn rate.
The great thing about digital marketing is the fact that it’s measurable and transparent. Results are easily tracked and compared to each other.
When you’re done with this article, you’ll understand why measuring and controlling these two metrics is vital to your long-term digital marketing success.
Things we’ll cover include:
- How you determine & calculate the value of a customer.
- What a churn rate is and why you want to closely track yours
But before we continue, here’s a quick word or warning.
The metrics we’ll discuss are for mature marketing funnel only. If you don’t already have a funnel or haven’t optimized for traffic and conversion -these metrics are not appropriate for you. Fair enough?
Let’s dig right in…
What’s The Value of An Individual Character: Your Customer Lifetime Value (CLV)
How much is a customer worth to you?
Customer acquisition is a key component of digital marketing. (By the way here is a guide for the 5 Trends To Watch Out For In 2019)
One of the ways we review our marketing Return-On-Investment (ROI) and impact is by calculating our Customer Lifetime Value (CLV).
Simply put, the CLV is the amount of money a person will spend while being your customer. The longer a customer keeps buying from you, the greater their CLV will be.
A higher CLV means your funnel is earning you more money. And which business doesn’t want to earn more money?
By understanding your CLV, you can also calculate how long it will take for your business to recoup the cost of acquiring a new customer.
How To Calculate Your Customer Lifetime Value
Below is a simplified formula for calculating the CLV for your business. Keep in mind that there are several ways of calculating this metric:
1- Find The Average Purchase Value
Start by divide your total revenue in a given time period by the total number of purchases over the course of the same period.
2 – Determine Average Purchase Frequency
Move on and divide the total number of purchases by the number of unique customers who bought from you during the period.
3 – Calculate Customer Value
Take the average purchase value and multiply that by your average purchase frequency.
4 – Estimate Average Customer Lifespan
Now estimate how many years an average customer continues to buy from your business.
5 – Calculate The CLV
Lastly, multiply the customer value by the average customer lifespan, and voila you’ve got your CLV.
Tracking CLV will help you optimize your marketing funnel for long-term customer relationships. Not once-off transactions. This is a great way to reduce your churn rate (more on this next).
Churn Rate: Not Paying Attention To This Will Kill Your Funnel Revue
Your churn rate is a calculation of how many customers your business lost in a given period.
Churn matter because it directly affects your businesses profitability. It costs several times more to acquire a new customer than to retain a old one.
By monitoring your churn rate you can measure how effective your business is at retaining customers. This in turn can uncover issues with your funnel’s customer service and product or service quality. Use it as an indicator of how happy your customers are with you.
To calculate churn rate take the number of customers you lost during a period, and divide it by the number of customers you started with at the beginning of the period.
When you operate a mature, successful marketing funnel carefully tracking CLV and churn rate will keep you profitable and warn you of any impending problems.
Understanding the lifetime value of an individual client helps you measure the ROI of your marketing funnel. It will also give you and idea of well your client acquisition is working. Keeping a close eye on your churn rate will let you know how good our business is at retaining the customers your funnel delivers.
Pay attention to these two figures in 2019 and you’ll have a productive and (hopefully) profitable year.