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With 310 million active customer accounts (as of the first quarter of 2016 according to Statista) – how do Amazon know whom from all the millions of customers, that they should prioritize and how?
The secret to that is knowing each customers specific lifetime value (CLV).
As CLV allows you to identify your most profitable customers in terms of generated income from purchases from your business.
This is also a metric you can follow over time for specific customer segments to identify if the results of your marketing efforts are improving over time. In short, is your personalization and marketing efforts having any impact at all? Are your relationship improving with the customer?
Knowing your CLV you know which your most profitable customers are and therefore can take active steps to attract more of these specific types of customers.
Calculating CLV helps you understand who your potential quality customers are and how much money you can spend on acquiring this type of customer. More high quality customers allows for a higher acquisition cost. Whereas for other types of customers, you should not allow the same CPA for in terms of calculating marketing costs and budgets. Makes sense right? However, many marketers still allow a baseline CPA for their marketing activities, whereas this should be reflected by the customers CLV. I.e the quality of the potential customer, in a specific case – the quality of the target group determine the specific CPA.
Learn how to calculate CLV of your business by using this simpel example
5 CRM cornerstones for improved business value
Photo by Thought Catalog on Unsplash
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