CLV is how much money a customer spends with your business for the duration of your relationship. It’s an important—yet overlooked—metric: rather than looking at a sale as simply a one-off exchange, CLV considers how valuable a customer is over time.
Understanding this can help you spend your marketing budget more wisely and keep your customer acquisition costs low. After all, it costs more to attract a new customer than it does to close an existing prospect or keep an existing customer.
Keeping your CLV high is vital to the long-term success of your business.
What is CLV?
Customer Lifetime Value (CLV) refers to the profit you expect to make from a customer over time.
For some businesses, this may mean that your profitable customers make larger purchases or many repeat purchases, thereby increasing their value to your business over the lifetime of their relationship with you.
However, for many industries with long sales cycles, that profit may come months or even years after you’ve established the awareness of your business with the customer at the top of the funnel (think: buying a car, applying to a university, procuring new software, or purchasing a home). These are big decisions and consumers need time to evaluate their purchases.
5 Reasons to Measure CLV for Your Paid Search Advertising Campaigns
Regardless of the nature of your customers’ CLV, optimizing your marketing campaigns to CLV is good for business. Here are five reasons CLV matters:
It helps you keep valuable customers
If you can identify and target high CLV customers, this should translate into higher ROI and could be a good way to improve your campaign performance.
You may find that there are segments of the market who value your product but have a lower than average CLV/CAC ratio, meaning you're spending too much on acquiring individual customers. If so, it may be worth exploring ways in which you can acquire these new customers at a lower cost or perhaps look for marketing activities where you might get more exposure for the same budget (e.g., by increasing reach).
It decreases CPA costs
Customer Cost-Per-Acquisition (CPA) is the amount of money a company spends on acquiring new customers divided by the number of new customers acquired during a given period.
You'll notice that different customer types have different CLVs, which means they contribute more or less than others towards paying your CPA. You can use CLV to compare campaigns and determine which ones are performing better, resulting in improved return on investment (ROI).
It's important to monitor this metric over time, as you may find you can reduce CPA while maintaining or even improving your bottom line. This is because the lifetime value of certain customer segments will increase with time on your platform, resulting in an overall decrease in acquisition costs.
It allows you to optimize your bids to different stages of the funnel
Full-funnel bidding allows advertisers to use top of the funnel conversion types for bidding while also factoring in final sales as a second bid factor. This bidding solution enables advertisers to grow efficiency and revenue from the sales funnel’s final stage while maintaining reactivity to recent market changes. Bids stay reactive to market changes, while efficiency targets are based on latent conversion metrics.
It helps you calculate campaign effectiveness
CLV will reveal which paid search campaigns are more successful, allowing you to optimize your total marketing spend.
You can compare campaign effectiveness by sub-segmenting customers by their CLVs. For example, instead of just looking at conversion rates for all traffic sources as a whole, you could break down the conversion rates by each campaign. This will make it easier to understand which traffic sources are most effective at converting.
It helps you grow in the long run
CLV isn’t something you need to track all the time, but ignoring it could spell trouble. Keeping an eye on CLV helps you spend your marketing budget more wisely, engage with your customers more effectively, and keep your CPA costs down through better loyalty—all of which helps your bottom line.
How to Calculate CLV
The simplest formula is as follows:
CLV = Customer Value (average order spend x number of orders in a year) x Average Customer Lifespan (in years)
To calculate CLV, you need to track customer metrics over time and calculate your customer churn. This will allow you to determine CLV across any given timeframe.
You may want to deduct CAC (customer acquisition cost) from your total to give you a deeper understanding of the true value of a customer.
Using a comprehensive reporting suite like MarinOne, you’ll be able to Identify which channels are driving revenue to your business. You’ll then need to track offline sales and interactions back to their source with a conversion tracking solution like Marin Tracker. Make sure to continue tracking touchpoints beyond the initial click-through, all the way through conversion.
How to Improve CLV
Here are some tips on improving your CLV.
Optimize onboarding. As soon as possible, the user should be able to get value from your product or service (e.g., signups, downloads).
Don't focus on customer acquisition alone. It's important to make sure users are retained over time.
Optimize CLV by marketing based on customer behavior. If people aren't making repeat purchases or converting to long-term high-value purchases, consider investing in marketing efforts to increase retention.
Look for ways to improve value. If customers are joining, but not staying around or buying after a certain period of time, focus on improving user experience and product features.
Over-deliver. If your product and service are great, people will come back.
Boost user experience. If you can provide an improved user experience, make sure to communicate this benefit in all your marketing efforts. Consider advertising on social media platforms that offer the opportunity for strong engagement.
Increase average value order. If customers are buying, but not purchasing many items per order, then there is room to boost sales.
Gather market research. If you can gather unbiased opinions about your product or service from potential customers, use this data to create marketing campaigns that will appeal directly to your target audience.
Uncover business drivers. You may need to modify your business plan based on what customers are saying.
Improve customer service. If you’re not delivering great customer service, customers will avoid dealing with you in the future. Not only that, but they’ll likely share their experiences on social media—which could turn away potential new customers.
Measuring CLV plays an important role in determining ROI, optimizing your advertising spend, and keeping your CPA low—all of which means less budget spent on search campaigns. Optimizing your CLV can provide valuable insights regarding whether or not there is excessive spending on your search campaigns. CLV allows you to evaluate the financial impact in order to re-strategize regarding how various programs are measured and attributed.
How MarinOne Can Help
MarinOne’s powerful self-serve platform connects your offline conversion data to the ad clicks that ultimately drive the sale, making it easy to see which customers are the most valuable and which campaigns have been effective in closing customers. From analysis and reporting to advanced bidding algorithms—analyze the most valuable shoppers, optimize your bids to revenue, and focus your efforts on your best customers. This leads to extending your marketing spend while attracting high-value customers to your brand.
Brands can now optimize Target Product Ads in MarinOne’s cross-channel ad management platform
There’s a reason so many consumers shop on Target.com and the Target app: the guest experience. Target has invested heavily over the last few years in making online shopping easy, convenient, affordable, and enjoyable for its millions of shoppers.
Target Product Ads Help Brands Intersect Shoppers’ Line of Sight
With this kind of growth, brands cannot afford to miss out on one of Target’s retail media offerings, Target Product Ads, which provides access to so many high-intent shoppers.
Target’s native, cost-per-click product ads amplify brands’ visibility and discoverability on Target.com and the Target app, which is becoming increasingly important in a now busier-than-ever eCommerce landscape. With available placements on search, browse, and product detail pages, advertisers can connect with customers with tailored ads at every step of the buyer journey.
Target Product Ads may be the solution that advertisers are looking for to address a variety of objectives, from defending market share to increasing purchase frequency. Brands can reach purchase-ready customers while making their products more visible across search and browse placements. And the best part: sales can be attributed down to the SKU-level to provide you with a granular understanding on performance.
MarinOne Optimizes Target Product Ads to Drive Incremental Sales
Marin Software’s collaboration with Roundel™ means customers will now be able to analyze, manage, and optimize their Target Product Ads directly from the MarinOne platform.
MarinOne unifies Retail advertising like Target Product Ads with other Retail Media campaigns as well as paid search, paid display, and paid social, while simplifying reporting and management of advertising campaigns across channels.
MarinOne’s Insights module automatically identifies opportunities such as Product A/B Testing in your account with estimates of potential value and easy implementation.
The automation tools in Marin make it easy and efficient to manage Target Product Ads. MarinOne’s unified optimization suite helps identify optimal levels of spend while MarinOne bidding delivers the best possible performance.
With the addition of Target Product Ads, MarinOne offers a complete growth solution across search, social, display, and eCommerce advertising, delivering the maximum return on investment.
Click here to get started with Target Product Ads today.
Everyone in search advertising is aware it’s coming, and trying to figure out where the pieces will fall. How will it impact the industry and more importantly, you and your business ?
As tracking is a complex, granular topic, I’ve asked Aleks Nikitina, Senior Solutions Architect here at Marin Software, to go through this topic in more detail and provide suggestions on what to do next.
Can you tell us what the latest Google announcement is all about?
AN: Historically, Google used third-party cookies to target ads across websites. Now, they are moving from this cookie-based approach of targeting to instead target wider audiences and provide more privacy to individual users. Google moving away from third-party cookies is the next step in the trend the industry has been following over the last few years. Similar to Apple’s Safari ITP (Intelligent Tracking Prevention), Google is moving to what they call, the Sandbox approach.
Browsers are shifting the industry tracking to a new path that is all about user privacy. However first party tracking will be allowed. In itself, the cookie remains very much alive.
First party data is the data that is tracked directly on brands’ domains. Some of our clients have their own internal tracking solution or use tracking vendors as a first party tracking solution, which will continue to work, however there are restrictions on the conversion window available to cookies in Safari.
What should the search marketer add to their to do list or goals beyond 2021 as a result?
AN: The first step is to make sure that your measurement system is using a first-party approach. The latest version of the publisher tracking pixels and Google Analytics are all first party. Even better is to consider a server-to-server approach that avoids some of the conversion window restrictions.
For advertisers relying on third party cookies for ad targeting, you should look to diversify your ad buys to account for potential lost opportunities as these options go away.
Do we know when this change will happen?
AN: It looks like Chrome will turn off third party cookies in some time in 2022, but the Privacy Sandbox will make its way into Chrome in April 2021. And of course Safari already blocks third party cookies, so I would recommend looking into alternative solutions as soon as you can.
What about our users at Marin, how can we help them in this transition?
AN: Marin Software users should reach out to their platform representative to start the conversation, who will bring in the help of the Professional Services Team where I work.
To give you an idea of how the different integrations will be affected, I cover below the main 3 tracking setups:
Marin Tracker: The main Marin Tracker solution is used by clients’ placing Marin conversion and click tags directly on their websites or via tag managers. This serves as a first party solution, which will continue working in today’s world. Marin also offers a server-to-server integration for our clients, where the clients’ server is making a call to Marin’s server to pass on details about the conversion event that took place on the client's website. Server-to-server solution is the way forward with the industry’s path change. Here, clients fully control what their partners (third parties) have visibility on.
Google Analytics: Similar to Marin Tracker option, clients are setting up GA tags on their website as a first party solution, which will continue working across browsers after this update, as it does today.
Revenue Upload: This will depend on where the data is coming from. If the client is sending Marin data from a third party, then they need to connect with their selected data vendor to identify next steps. However if the client is already sending Marin data from their own cookies, then there is nothing for them to do here.
These industry breaking changes are right around the corner, are you ready? Get a deeper understanding of these changes and learn about Marin’s privacy focused solutions here.
Apple has been busy adding privacy-related features in iOS14. In December, with iOS 14.3, Apple added “Privacy Nutrition Labels” to the app store, clearly summarizing the applications privacy practices, including what information is collected and how it is used. App Tracking Transparency will be required with iOS 14.5 later this spring. Developers must ask users to opt in to tracking for advertising and other purposes.
In this blog, we give you a perspective on how marketers should be thinking about these changes. To learn more, don't miss our webinar Find Your Way in the Cookieless Worldon Thursday, March 25th | 10am PT - 1pm EST - 5pm GMT.
Apple’s iOS 14 updates are great for users’ privacy and Facebook is rolling with Apple updates by introducing breaking changes that facilitate enhanced privacy options. Since many of our Marin Social customers have questions about the impact of the iOS 14 updates, we want to assure customers that Marin is well positioned for iOS 14 updates along with providing a recap on the impact of iOS 14, especially for Facebook users and advertisers.
In terms of impact on Facebook users, Facebook is introducing a screen to prompt iOS 14 users to opt in to Facebook ad tracking. The carrot is better ad personalization. If users opt out, limited information about conversions, generated by FB ads to that user, will be available to advertisers.
In terms of impact on Facebook advertisers, Ads Manager contains detailed, account specific, action items for advertisers ex. selecting only eight conversion events for optimization efforts across an account. However, after the iOS 14 updates go into effect, advertisers can expect five fundamental changes:
Facebook will have limited conversion tracking for iOS 14 users that opt out. And many will opt out.
Facebook pixel Cookie Window is limited to 7 days for clicks and same day for views; this may lower reported conversions. In terms of impact scope, a majority of Marin Social advertisers attribute Facebook conversions to clicks that occurred up to 28 days before the Sale/Form Fill. As such, we expect a majority of Facebook advertisers to be impacted by this change and we recommend proactively updating Attribution Settings.
Advertisers with multiple domains can no longer attribute conversions from paid traffic across multiple domains. Customers that drive paid traffic to Domain A and convert the same visitors on Domain B will be directly impacted by Apple’s Private Click Measurement (PCM).
Audiences based on website interactions and mobile app engagements will decrease in Size and Reach.
App advertisers will no longer be able to use ‘app connections targeting’ e.g. they cannot target people that are connected to App fans/followers.
Facebook Audiences for retargeting (WCA and MACA) will contract in size due to iOS users opting out when the Facebook prompt is shown. Ideal audience size for retargeting and lookalike audience creation is 10,000 people; smaller audiences may yield relatively lower performance.
Publisher reported conversions should not be expected to reconcile with internal systems.
While both Google and Facebook are preparing for a cookie-less future, neither publisher has announced plans for cross-channel ad tracking.
each Publisher only includes their view through conversions, but not the others
Each Publisher has different attribution windows for paid clicks.
Advertisers will need to upgrade their tracking.
Facebook is offering a robust server-to-server solution to provide advertisers with more transaction (not user) level details. Cross-Channel advertisers should plan on deploying Search and Social publishers’ enhanced ad tracking solutions alongside a third party’s server-to-server solution like Marin Tracker. This way, advertisers can analyze paid channels performance under the publishers lens and via conversion metrics that are click based, de-duplicated, and measured under the same attribution window.
Facebook Ads will no longer offer demographic breakdowns for conversion events.
Facebook Advertisers should plan on running A/B tests to determine if there's a statistically significant difference in performance between demographic segments.
If you need more information about the impact of iOS14 changes on Facebook ads, sign up to our webinar Find Your Way in the Cookieless Worldon Thursday, March 25th | 10am PT - 1pm EST - 5pm GMT.
Prime Day is a great example of a “rising tide” lifting all retail “ships” - if you are focusing your Prime Day activities exclusively on Amazon Advertising you are likely missing out on a lot of great traffic.
Google search trends highlights how customers are not always starting their Prime Day shopping on Amazon. Instead, we see a healthy amount of people who are still using Google as their starting point - even if they end up converting via Amazon.
Retailers should be ready for an increase in their search impressions as consumers are executing Prime Day focused searches on channels like Google. To take advantage of this increase in traffic, retailers should enable Marin’s Amazon Attribution feature. This feature allows our advertisers to easily see the advertising impression and cost information alongside the purchases that occur on Amazon. This insight allows Marin customers to explore some Prime Day tactics that would otherwise be impossible to measure.
Consider sending non-branded search terms directly to Amazon
During normal time periods, consumers are more likely to buy a product on Amazon.com than on another eCommerce site. Our advertisers have seen this even more strongly during Prime Day for New to Brand shoppers. With Marin and Amazon Attribution configured you have a full view of the search costs and Amazon purchases tied together in MarinOne. Take advantage of the increased search traffic and the “ready to buy” attitude of a Prime Day shopper to achieve higher ROAS on these non branded terms, even after accounting for the higher fees of selling on Amazon vs your site.
Advertise your Prime Day deals on social channels
Highlight your sales, coupons, or lightning deals via social media and retargeting. Prior to Marin’s Amazon Attribution support this tactic would have resulted in social expenditures but zero visibility into the return. Now our advertisers can take advantage of Prime Day buzz and proactively drive customers to their deals and track every step of the way!
Add Prime Day Sitelinks
For Branded terms, advertisers might not want to direct all traffic directly to Amazon, however a Prime Day specific sitelink could be a great opportunity to allow consumers to self select if they prefer to go directly to Amazon. Consider directing the sitelink to your Amazon Store for a more brand focused approach.
Prime Day 2020 is a great opportunity to think outside the box - now that advertisers have access to Amazon Attribution in Marin there is no excuse not to experiment with your search and social traffic on Prime Day.