{"id":1964,"date":"2022-04-12T13:18:27","date_gmt":"2022-04-12T06:18:27","guid":{"rendered":"https:\/\/mintea.blog\/?p=1964"},"modified":"2022-04-12T13:19:41","modified_gmt":"2022-04-12T06:19:41","slug":"1964","status":"publish","type":"post","link":"https:\/\/mintea.blog\/?p=1964","title":{"rendered":"Customer Lifetime Value (CLV) may be more appropriate than Marketing ROI"},"content":{"rendered":"<p><strong>Customer Lifetime Value (CLV) may be more appropriate than Marketing ROI<\/strong><\/p>\n<p><strong>Using CLV to determine Marketing ROI<\/strong><\/p>\n<p>Let\u2019s assume that:<\/p>\n<ul>\n<li>the average customer\u00a0<a href=\"https:\/\/www.clv-calculator.com\/customer-costs\/customer-acquisition-cost-formula-clv\/\">acquisition cost<\/a>\u00a0for a company is $100<\/li>\n<li>the average annual profit for this customer cohort is $60<\/li>\n<li>and the average customer lifetime is three years.<\/li>\n<\/ul>\n<p>The firm determines that the profit contribution is $180 before consideration of the initial acquisition cost (which means that CLV =$80).<\/p>\n<ul>\n<li><strong><em>CLV is calculated as (-$100 + ($60 X 3)) = $80 (please refer<\/em>\u00a0<\/strong><a href=\"https:\/\/www.clv-calculator.com\/customer-lifetime-value-formulas\/simple-clv-formula\/\"><strong>simple CLV formula<\/strong><\/a><strong>).<\/strong><\/li>\n<\/ul>\n<p>In this case, the marketing ROI is ($80 \/ $100 = 80%). In other words, the marketing department has turned $100 into $180 by acquiring new customers.<\/p>\n<p><strong>USING MARKETING ROI INSTEAD OF CLV<\/strong><\/p>\n<p>This approach may be preferred to the standard marketing ROI calculation because it looks at a longer time horizon. Let\u2019s look at the\u00a0<strong>same situation<\/strong>\u00a0above, but this time\u00a0only looking at a one-year horizon:<\/p>\n<ul>\n<li>Average acquisition cost = $100<\/li>\n<li>Average customer profit per year = $60<\/li>\n<\/ul>\n<p><strong>BUT<\/strong>\u00a0the average customer lifetime period of 3 years is\u00a0<strong>NOT<\/strong>\u00a0considered in marketing ROI, because with a marketing ROI calculation, we generally only consider incremental results on a s<strong>hort-term basis,<\/strong>\u00a0such as the first year only in this example.<\/p>\n<p>This would mean that the marketing ROI would be calculated as:<\/p>\n<ul>\n<li>Marketing ROI = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (Improved profits less marketing costs)\/marketing costs<\/li>\n<li>Marketing ROI = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 ($60 \u2013 $100)\/$100 = \u2013 40%<\/li>\n<\/ul>\n<p>When only ONE year is considered in marketing ROI (which is common practice when measuring a campaign with short-term results, then the ROI in our example is negative 40% \u2013 that is, we lost money for the firm.<\/p>\n<p>The CLV calculation however, shows that the campaign had a positive contribution because profits from these customers continued for a further two years on average.<\/p>\n<p>This means, particularly for marketing campaigns that deliver long-term results, calculating customer lifetime value will provide a better evaluation of marketing performance.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Customer Lifetime Value (CLV) may be more appropriate than Marketing ROI Using CLV to determine Marketing ROI Let\u2019s assume that: the average customer\u00a0acquisition cost\u00a0for a company is $100 the average annual profit for this customer cohort is $60 and the average customer lifetime is three years. The firm determines that the profit contribution is $180 &hellip; <a href=\"https:\/\/mintea.blog\/?p=1964\" class=\"more-link\">Continue reading <span class=\"screen-reader-text\">Customer Lifetime Value (CLV) may be more appropriate than Marketing ROI<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":1934,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[32,63,62,55,56,26,54],"class_list":["post-1964","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bookmarked-articles","tag-analytic","tag-clv","tag-crm","tag-customer-analytic","tag-customer-lifecycle","tag-data","tag-data-mining"],"_links":{"self":[{"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/posts\/1964","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mintea.blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1964"}],"version-history":[{"count":4,"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/posts\/1964\/revisions"}],"predecessor-version":[{"id":1971,"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/posts\/1964\/revisions\/1971"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mintea.blog\/index.php?rest_route=\/wp\/v2\/media\/1934"}],"wp:attachment":[{"href":"https:\/\/mintea.blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1964"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mintea.blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1964"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mintea.blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1964"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}