Customer Lifetime Value (CLV) and Other Customer Engagement Metrics to Track
Marketing growth gets all the glory, but businesses succeed when they're able to deliver long-term, sustained customer engagement and retention programs that deliver customer lifetime value (CLV). That's why a crucial component of measuring marketing performance comes down to tracking customer acquisition costs (CAC) in relation to CLV. Overall, a ratio of 1:3 CAC:CLV is a strong benchmark to aim for.
In the beginning, brands often pay attention to top-of-the-funnel marketing KPIs (sometimes referred to as vanity metrics) that focus on campaign performance, such as email marketing campaign or push notification open rates. However, if your goal is to deliver on the promise of putting customers first—and see the benefits of doing so in the form of greater profitability, customer loyalty, and revenue—then that requires a mindset shift. Instead of measuring campaign performance, the goal instead must be to truly understand the customer.
So here are the steps you can take to “crawl, walk, and run” in connection with getting to know your customers better. Starting with identifying the metrics you need to track, how to put them to use to improve your marketing and personalization, and finally, how to advance even further and analyze KPIs like CLV at the segment level.
Crawl: Gather the Customer Engagement Metrics You Need
Here are some of the top measures that can help you better understand your customers.
1. Retention rate (formula): Percentage of customers retained over X period
What you need to know about retention rate: You should be able to identify when a customer churned: Whether it was last week, month, or year. However, before you identify when a customer churned, you need to have a clear understanding of what churn means for your specific business. For many companies, it means ongoing inactivity (i.e. a customer who stops visiting your app or website or engaging with the messages you send), but for a retail brand, for instance, it might be a customer who has stopped making regular purchases. In addition, there are a number of different ways to measure retention, so make sure you understand the differences between each one and choose the type of retention that connects to your business and its goals.
2. Customer lifetime value (CLV) (formula): Divide your lifetime revenue by lifetime users, which can be drilled down to the individual or segment level
What CLV means: Beyond simply tracking your company's overall revenue, this formula will tell you how much revenue individual customers are contributing, highlighting which segments of your current audience are driving key business outcomes.
3. Customer acquisition costs (CAC) (formula): Add up the total costs associated with acquiring new users, divided by the number of new users acquired
Why track CAC: Your goal should be to see how much it really costs you to acquire new customers. Without an understanding of the investment involved in gaining each new customer, it can be difficult to assess whether your marketing efforts are positively impacting your bottom line, raising the risk that you might be throwing good money after bad in connection with acquisition.
4. Other key customer engagement metrics to track include:
Average number of basket or cart items
Average order value (AOV) or average basket value
How can you find out your company's CLV and other engagement KPIs? Depending on your brand’s customer engagement technology stack, it may be easier or harder to surface or determine these metrics. In many cases, the raw data that underlies these KPIs may be collected by your email service provider (ESP), customer engagement platform, or web analytics provider, but whether the stats will be automatically curated or require work on your side to determine them will depend on the technologies you use and the metrics you care about.
Walk: Use Customer Engagement Metrics to Guide Personalization and Improve Customer Experiences
After collecting the statistics you've gathered in the previous crawl phase, you can begin walking by putting these into action to support more effective marketing outcomes.
Using these metrics, you can begin to offer more personalized experiences and customer lifecycle marketing campaigns, targeted by key segments. For example:
Customers with a high AOV vs. those with a low AOV
What KPI-informed campaigns will be the most impactful depends a great deal on your specific audience base and business model. While personalizing messages and providing relevant brand experiences tends to result in stronger business outcomes across the board, the specific campaigns and activations that work best for your brand might different significantly from those that are ideal for other companies. To get the full value of these programs, it’s smart to prioritize testing and optimization in connection with your customer engagement campaigns in order to find the approaches that move the needle most successfully for you.
Run: Measure CLV and Other Customer Engagement Metrics by Segment
Brands can get an even clearer picture of individual behavior and preferences—and offer up even more effective, personalized marketing outreach—when they begin to look at customer engagement metrics like retention, CLV, and more by segment. To learn what it takes to advance to this stage and how to make the most of it when you get there, check out our guide "Beyond Vanity Metrics: Key Measurements for Customer Engagement."