Central to a successful marketing strategy is two vital concepts which need to be comprehended by all digital marketers: the Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC).
A Customer Lifetime Value (CLV) is a definition of the expected net-profit of each customer relationship. In simple terms, the CLV defines how much money an organisation can spend on a marketing activity to acquire a new customer before generating a negative ROI.
When planning and setting up a market related web-analytics strategy, no matter size of organisation, the central effort always should be to implement a structure which facilitates data collection and “live reporting” on the CLV by allowing for cross-collection of data between the analytics platform reporting on main campaign metrics and CRMs or book-keeping systems for sales- and customer data.
The Customer Acquisition Cost (CAC)
While the CLV-metric shows how much each customer relationship is worth to an organisation, the Customer Acquisition Cost (CAC) metric report on the cost of acquiring new customers through each channel of communication or marketing activity. Knowing the CAC for individual marketing efforts makes it possible to calculate how much an organisation can spend on a marketing related channel or activity before generating a negative ROI and also to understand where the highest ROI on invested marketing money can be gained. Stated CACs also enables a comparison of different marketing categories such as paid search vs. banners; billboards vs. TV-commercials; and even how much money an organisation should spend on their website, blog or division of PR.
Knowing the CAC of each marketing channel and activity is the key to convert a marketing expenditure from constitute as costs to become an investment.
Each new marketing effort, thereby, should have a corresponding strategy of analytics implemented enabling a clear visualisation of its ROI, and when applicable, also should summarise the total number of new customers generated which then can be divided by the total cost of the activity generating an explicit activity CAC.