Online marketing best practices: Internet retail and B2C
Source: Can Stock Photo
In any online marketing role you often have performance targets set both in terms of volume and cost-per-action (CPA). However, for Internet retail subscription and other businesses where customer value—or revenue—grows after the initial acquisition and can therefore vary dramatically over time, many online marketers struggle with how to measure lifetime customer value (LTV) by acquisition source and how to use that information when making spend and customer acquisition decisions.
I've worked with some highly advanced online marketers, so I had the opportunity to ask them how they addressed this issue and what the optimal solution would be for them:
Get accurate customer profitability data by source
An all too common frustration of online marketers is not having the data or visibility into data they need to make decisions on how to allocate paid acquisition budget. In order to optimize online marketing acquisition spend to what will deliver the highest ROI in terms of LTV, online marketers have access to that data in both the format and detail they need. In high performance companies online marketers are the “client” in instances where another team maintains customer profitability data or data warehouses.
Validate hypothesis on customer acquisition channels performance over time
Many online marketers have hunches on lifetime values of customers produced through coupon sites, affiliates, paid search, unpaid search, and social media. For example, some e-commerce companies I've spoken with suspect that some acquisition channels produce much lower LTVs than others, but do not have data to validate their assumptions—so they keep funding what they think are less profitable channels.
When online marketers have actionable LTV data
Having actionable lifetime customer data is only as effective for online marketing, SEM and, email marketing professionals as marketers' ability to use the data in their day-to-day customer acquisition, database, and email marketing activities. Some bid management tools and email service provider interfaces let online marketers override CPA targets with LTV metrics to optimize for LTV.
Having this data handy when online marketers are optimizing their search, affiliate, digital display, remarketing, and other spend is the best way to ensure that online marketing spend distribution and campaign mix is optimized to deliver the highest LTV and not just the highest CPA, as the two figures may differ dramatically. LTV is more important to the profitable growth and sustainability of a company.
Types of businesses where optimizing for LTV is vital
Optimizing customer acquisition for LTV is particularly important for business models where repeat business from the same customers is factored into other financial metrics of the business. In these businesses the assumption is once a customer is acquired he or she will return again through non-paid channels. This means customers become much more profitable to the business on repeat visits, as there is no acquisition cost for those repeat purchases.
These types of businesses include:
- Private sale or flash sale sites
- Group buying sites
- Daily deal sites
- Online shopping clubs
- Subscription based businesses
- Social communities or social gaming sites
Many of our customers have shared their customer or purchase attribution models with us. Other online marketers capable of building sophisticated sales attribution models do not do so, because while they know what to build but do not have access to the data.
More from Ted Bockius next week in Direct by Design with information on best practices to optimize online marketing spend for the highest CLV, revenue, or profit. Bockius is director of marketing at RJMetrics.