How to drive growth by maximizing customer value
There are only two ways to generate revenue: acquiring new customers or getting more value from existing customers. New customer acquisition can be oh-so expensive…and in this economy? In 2023, getting scrappy and making the most of what your current customer base is key.
The CMO’s Guide for Igniting Profitable Growth in 2023 is an all-access guide capturing how marketers can achieve profitable growth. Here are 5 learnings you can apply:
Understand lifetime revenue vs. lifetime profit
Consider this: would you rather have 100 customers that generate $20 of profit each, or 50 customers that generate $60 of profit each? What if the latter group generated less revenue? In lean economic times with profit as a focus, isolating the profit generated by each customer should take priority (even to the detriment of revenue).
It’s not as simple as blending everything together, as different cohorts of customers behave differently (think repeat purchase rates). An efficient, profit-centric marketing organization must understand the total profit any given customer is expected to generate to forecast effectively.
Determine how to get the quickest buyback period
A buyback period is how long it takes for a customer to generate a net profit. For some businesses, this could be days – for others, it could be months or even years.
During this period where profit is king, initiatives have to be built around minimizing the buyback period as much as possible. More often than not, customers are more likely to purchase again sooner than many brands think (some of our clients even see customers making a second purchase the same day!).
To better understand, manage and optimize customer flows, build a cohort analysis to segment audiences by how quickly they break even. Ideally, businesses can identify certain products, segments or traits that drive customers with the quickest buyback period and then focus their efforts there.
How can brands drive recurring revenue?
Maximizing profit per customer is about converting them into repeat buyers as fast as possible. Optimizing a marketing program to emphasize recurring revenue, subscriptions and repeat customers is the most reliable way to grow while maintaining profitability.
Here are a few considerations for cultivating repeat customers:
- Look at how your business model generates recurring revenue. Does your business have any means to generate recurring revenue? Subscriptions, auto-orders, refills, freemium, etc.? If not, marketing should work with product and finance to create one.
- Consider selling multiple products. It’s generally more efficient to sell multiple products to a small set of loyal customers than it is to sell one product to many prospects. Does your product assortment allow for continuous upsells and cross-sells to your loyalists?
- Build out loyalty programs. Is there a reason for customers to buy multiple times? The classic “buy 9, get the 10th one free” can be replicated in more complex ways. Other effective means of increasing loyalty include better rates or VIP service levels for those who are premium customers, commit to a longer-term contract, or buy at a certain threshold.
- Fine-tune lifecycle marketing. Most companies underinvest in lifecycle marketing, with poor segmentation, limited automations, low personalization and blasting low-value emails to subscribers. Creating a highly valuable, curated lifecycle program gets people to consistently open and engage with sends, which in turn improves performance and stops getting filtered as spam.
- Invest in paid media for existing customers. Typically less incremental than paid acquisition, paid retention can be highly effective in times of profit emphasis. Putting a small amount of paid media against existing customers can pull forward those customers to purchase sooner than they would organically.
- Engage in post-purchase upsells. In general, customers are most likely to buy again immediately after they’ve already converted. Post-purchase upsells are a great way to maximize the value from customers, and have no negative impact on user experience, conversion rates, or checkout flow.
Drill into customer cohort profitability
Is it worth acquiring a large percentage of customers through discounts or with a loss leader product? What about through a free trial vs. a paid contract? Identifying these nuances by cohorting your customers will help inform the best type of customer you want to acquire.
Many brands over-index on trying to over-define their ideal customer profile (ICP) without thinking too much about the total amount of profit available in their current customer base, or an easier to get though less-than-ideal segment. For example, would you rather have a customer list of 10,000 worth $5,000 gross profit each, or one with 100,000 worth $1,000 gross profit each?
Understanding everything about your audience’s potential individual and aggregate value, how to speak to them, what products lead to the best lifetime value and the problems that your product can solve will unveil the optimal profit ratios.
Optimize assortment for profit
As with customers, CMOs should focus on the products that most efficiently generate net margin. While the topline growth might not be as impressive, focusing your efforts on a lower AOV but a higher margin percentage will yield an overall growth in profit.
During an economic downturn, keep a firm grasp on company financials and how marketing can help drive better profits. Focus on getting more from each customer to improve your lifetime value to customer acquisition cost ratio (LTV:CAC) and thereby get more with less investment.
How can your business drive profitable growth in 2023?
For all-access insights from our playbook, download The CMO’s Guide for Igniting Growth and Profits in 2023.
Interested in growing together? Reach out to get a complimentary marketing appraisal, or read up on client success stories like this one about maximizing customer value for Aviator Nation.