The Must-Have KPI

Psst… Allow me to let you in on a little secret

In our quest to use data, we frequently hinder our ability to drive growth.

We want more. We crave more.

But is it actually getting us to where we need to go?

Remember the days before cell phones? We would have to use a map book, carelessly flipping through pages while driving 50 miles an hour, desperately trying to find out where we needed to turn.

Want to know how far you need to go? Put your finger and thumb next to the scale and then move to the road you were traveling down. Yep, 3 miles then turn left – looks good to me.

The map book had all the information we needed, we just couldn’t access it efficiently or effectively.

I could argue that perhaps the greatest invention was a GPS right in the palm of your hand.

Why?

Because I get lost. ALL THE TIME!

The same can be said for data.

Data is one of the most misused components of sales and marketing because in many cases, the dashboards, visualizations, and tools have become more tantalizing to the end-user than the insights themselves.

It’s like someone bragging about their paintbrush, but all they’ve painted is a stick figure.

Fancy paintbrushes (data) don’t make a masterpiece – what you do with them does (insights)!

Dashboards are cool, but do you know your customers?

Most businesses have a wealth of data at their disposal. The problem is that we rush to build those fancy dashboards without first diving into who is bringing us revenue and why.

The best advice I have is to get to know your customers.

Let me say that again… KNOW YOUR CUSTOMERS!

And the first KPI to uncover is Customer Lifetime Value (CLTV).

CLTV is widely regarded as the most important metric for businesses because it quantifies the long-term value each customer contributes to the company. Unlike other metrics (i.e. new deals booked) that focus on short-term gains, CLTV provides a comprehensive view of customer profitability over their entire relationship.

By understanding CLTV, leaders can make strategic decisions about customer acquisition, retention, and marketing investments – ultimately driving sustainable growth and maximizing profitability.

The CLTV Formula

CLTV reveals the average value of a customer to your business over the duration of the relationship. The common formula employed to calculate CLTV is as follows:

Customer value is the average purchase cost and frequency of their purchases, whereas the average customer lifespan indicates the typical duration a customer remains active, divided by the total customer count.

Huh?

KEEP CALM! I have a spreadsheet for that.

Check my math… if I made an error, let me know and I’ll send you a (crappy) gift.

Unlock customer insights 

The CLTV formula serves as valuable insights for you to strategically plan to acquire and retain customers. By getting to know your customers, you will be able to uncover unique characteristics of who they are and match to highly sought after prospects.

Marketers should leverage this information with:

1. Targeted marketing

2. Customer segmentation

3. Resource allocation

4. Product and service offerings

5. Customer Experience

The shift to long-term profitability will help your business prioritize efforts to attract and retain your most valuable customers. This helps maximize returns on marketing investments and ensures you’re not just chasing one-time buyers.

The CLTV analysis also helps create better retention strategies because as we all know, it’s far more cost-effective to keep a loyal customer than to constantly acquire new ones.

Don’t let data drive you in circles

Imagine an analyst sitting in a boardroom with executives eager to make a critical decision about a strategic initiative. The analyst presents a well-researched report filled with insights, confidently outlining the key metrics needed to move forward.

But instead of making a non-critical decision, one executive leans in and asks for a deeper dive into a different data set. Another suggests reanalyzing customer feedback, while yet another asks for projections based on alternative scenarios.

The requests keep coming, and the analyst’s initial analysis, already thorough, becomes the foundation for endless iterations and rework.

I’ve been that analyst.

Don’t let the allure of being (data) smart inhibit your ability to think rationally and strategically.

Use data to your advantage. Start with customer lifetime value, expand your analysis, and be quick and flexible in making decisions.

Failure to do so will revert your efforts back to driving with a map book, when you had a GPS the entire time.

~ Joseph
(hit reply - it’s not going into the email abyss. It’ll land straight in my inbox)