E-Mail : What's That Contact Worth?
Using e-mail to build lifetime customer value
November 2008 By Loren McDonald
In order to calculate it, you need a basic set of data about your customers:
Next Step: Use LCV to Create Customer Segments
How you define high- versus low-value customer segments depends on your business and objectives. While not based directly on LCV calculations, the following represents a simple approach to segmenting customers into four categories according to their values:
- How long is the typical period between purchases?
- What percentage of your customer base makes a repeat purchase?
- How much is the typical purchase?
- What are the profit margins and actual profits per purchase?
- What are the discount rates (price reductions, incentives, etc.) and product inflation rates?
- Calculate your acquisition rate:
- Cost of reaching a customer
- Response rate
- Cost of attracting a customer
- Coupon costs and other incentives
Next Step: Use LCV to Create Customer Segments
How you define high- versus low-value customer segments depends on your business and objectives. While not based directly on LCV calculations, the following represents a simple approach to segmenting customers into four categories according to their values:
- Top Spenders: Those who ordered twice in a set period and spent more than $125.
- Moderate Spenders: Those who ordered in the past, but not on a regular basis.
- We Want You Back: Those who ordered in the past, but not in the last two years.
- Prospects: Those who opted in for e-mail, but never ordered.
Companies Mentioned:
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