Customer Lifetime Value in brief
Let's dive into the concept of Customer Lifetime Value (CLV). Recently, I had a conversation with my colleague Kasper about where he typically makes his purchases, and he mentioned Zalando. His first purchase on the platform back in 2018 was 400 DKK, but since then he has almost exclusively shopped there. This example illustrates that customers can potentially be worth far more than the amount they initially spend. By identifying a customer's potential lifetime value and tailoring your marketing strategy accordingly, you can — even in a challenging economy — position yourselves as competitive players in the market.
CLV in Google Analytics
Google's latest generation of bidding strategies could prove decisive in the way we advertise. With these new features, you no longer need to focus exclusively on intermediate KPIs such as CPC or CPA; they can now be set up with business outcomes such as customer lifetime value.
This approach is called Bidding for Value, and in some of the most advanced cases, lifetime value data can be entered directly into the Ads account, which is used as an indicator when deciding how much to bid for a customer.
Let's elaborate on how 'Value Based Bidding' works by looking at a relevant example. Imagine we have three different customers with conversion values of 500 DKK, 1,000 DKK and 1,500 DKK respectively. Normally, all three customers would receive the same bid of 50 DKK in a traditional 'Conversion Bidding' approach. With 'Value Based Bidding', however, each bid is assigned individually based on the customer's potential lifetime value: they would thus receive bids of 25 DKK, 50 DKK and 100 DKK respectively.
When we apply this method together with a robust mix of first-party data, we see profitable results. It is important to note that this is not a short-term strategy solution. But if your goal is to identify and attract profitable customers over the long term, it is absolutely worth integrating Customer Lifetime Value (CLV) into your marketing strategy.
Google Analytics Universal Analytics has now been deprecated, and Google Analytics 4 has taken over. This new system includes Customer Lifetime Value as a built-in feature, making it easier for you to use CLV as a concrete KPI in your overall marketing mix.
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