Customer Lifetime Value: Win the Facebook Ads Auction Every Time
Find out how to make the most of the CLV metric to multiply your profits, dominate your niche on Facebook and make your competitors cry.
Park Your Tank on Your Competitors Lawns
At the end of the day, the Facebook ads system is an auction. And in an auction environment, the highest bidder will always win out in the end.
We can do a lot to improve the success of our campaigns by increasing CTR and enhancing relevance. But you will still be bidding against countless other Facebook advertisers for the available impressions. If you want to scale up your campaigns and reach the widest audience possible, you need to be the advertiser with the deepest pockets.
This is where the nature of Facebook advertising puts you at a disadvantage. If you are promoting a niche product using Google search ads, you only have to compete against others in the same niche. Let’s say you are a life coach promoting your services. In this case, you are going head-to-head with other life coaches to win impressions. Seeing as life coaches are unlikely to have million-dollar advertising budgets, you are competing on a level playing field.
Not so on Facebook. Your prospects may also be targeted by multi-billion dollar corporations with very different offers. You may have to outbid companies who allocate millions of dollars to their advertising campaigns. How are you ever going to win the ad impressions you need?
That’s where an understanding of Customer Lifetime Value (CLV) comes in. When you understand this concept, and know how to leverage it, you can easily outbid everyone in your niche – and even give the big boys a real run for their money.
The Importance of Customer Lifetime Value
The concept is incredibly important, yet it receives little attention. If you become one of the few who work it to real advantage, you will have an unassailable lead over your competitors. This can be a total game changer for you and your business. In fact, research shows that the fastest-growing ecommerce companies have a customer lifetime value 79% higher than their peers.
As the name suggests, Customer Lifetime Value is a measure of how much profit a typical customer generates for you in the long term. CLV explains why finance companies can pay hundreds of dollars for mortgage and insurance leads. They may be out of pocket at the front end, but they profit overall by collecting monthly payments over several decades. The value of a customer over a whole lifetime easily exceeds the cost of acquiring the business. They are looking at the big picture.
Most online sellers do little to increase the CLV numbers in their business. That means their profit per customer is lower than it could be, which in turn means they have to keep cost per acquisition as low as possible. That’s no way to scale a business!
When you get good at maximizing customer lifetime value, the situation is reversed. This is the high tide that floats all boats in your business. Every campaign becomes more effective and more profitable. If you double your profit per customer, you may be able to triple your cost per acquisition and still come out ahead. Then you can play whack-a-mole in the Facebook ad auction and flatten even big corporate competitors.
How to Measure Customer Lifetime Value
CLV is such an important metric that every shopping cart and e-commerce platform should crunch these numbers for you as a matter of course. But generally speaking, they are not especially good at it. Luckily, there are some notable exceptions.
If you are selling digital products, especially memberships, then MemberMouse is the way to go. If you sign up for their Advanced Plan, you get access to the Advanced Reporting Suite. This is going to cost you $99 a month, but this investment will be repaid many times over. This software allows you to see at a glance what your CLV numbers are.
Better still, you can track CLV by advertising source. This information is invaluable if you use it to track Facebook ad campaigns individually. Using this information, you may discover that Canadian customers are twice as profitable as Australian customers, or that video ads produce better buyers than static ads. Then you can focus your ad spend on your most best prospects. Why every platform doesn’t offer this kind of granular CLV reporting is a total mystery to me…it’s worth millions!
If you are running an e-commerce business, you do have options, though. You can track customer lifetime value with WooCommerce, Shopify, and SamCart. If your current platform doesn’t support CLV tracking, then you might want to seriously consider moving to one that does.
How to Increase Your Customer Lifetime Value
Once you have a system in place for tracking CLV, then you need to work hard on this metric. Every time you increase your CLV, you are making your business more profitable and more competitive. Your existing customers are always your best future customers – be sure to make the most of them.
Here are some ideas to help you add a zero to those CLV numbers. We’ll walk through the customer life cycle and look for opportunities to add value.
#1. Multiple Pricing Options
If you are only offering customers one pricing option, you are leaving money on the table. Adding a premium pricing option into the mix can make an immediate difference. There will always be customers who want to own the premium version and will be prepared to pay significantly higher prices for it. But that’s not all. The mere existence of a premium option makes the regular price seem a bargain by comparison – that can lead to more sales of your standard product.
#2. Order Bumps
‘Would you like fries with that?’
The classic McDonalds order bump has generated billions of dollars in revenue. You can get a nice bump in profits, too, simply by offering an additional option on the checkout page. This is a great place to offer a profit with recurring billing. The initial extra cost to the customer may be small, but the result may be many months of extra monthly income for you. ClickBank are really good at this:
#3. Upsell and Downsell Chains
A customer who just bought from you a few seconds ago is the best customer you will ever have. That’s why upsells are so powerful. You should always have a second product to offer customers while they are still in the checkout process. If you use one-click upsells, then purchasing the extra product is as easy as clicking a button.
But don’t stop at one upsell. Create a whole chain of relevant products to offer – there are always customers in a buying frenzy who will eat up everything you offer.
If the customer declines an upsell, offer them a downsell instead – a cut-down version of your upsell product at a lower price. Properly-constructed upsell and downsell chains can do wonders for your CLV and the success of your business.
#4. Offer Additional Products to Existing Buyers
This works particularly well with membership products, but you can make it work in all kinds of scenarios. When customers log into their members’ area, make sure you have additional products to offer them. You can create coupons that are good for a discount, and make this a benefit of membership.
Purchasers should be moved automatically from your prospects’ mailing list to a new members’ mailing list. Now you have a list of active buyers to target with special offers. Tag them into segments according to the products they have purchased, and create specific offers for each segment.
#5. Recurring Products
One of the best ways to increase customer lifetime value is to encourage buyers to sign up for recurring products. You can do this using any of the methods outline above. Let’s say you can persuade 15 percent of buyers to also sign up for a digital membership at $99 a month. If members stay in the program for six months on average, you have just added around $89 to your average revenue per customer.
If you already have recurring products, then work had on reducing churn. Just a five percent increase in customer retention may increase your profits by around 75 percent. That’s worth the effort!
You can ramp up the numbers still further by offering several levels of membership – perhaps Silver, Gold and Platinum. Many people will upgrade, and those Gold and Platinum members will increase your monthly recurring revenue significantly.
#6. Save the Sale
All businesses are leaky buckets. A lot of prospects go into the sales funnel, but only a few come out the other end as customers. You need to work on fixing that if you want to maximize your profits.
Use Facebook ads to retarget people who abandoned their shopping cart. These are easy pickings and you can expect excellent returns on your advertising. If you are able to tag them in your mailing list platform and follow up, do that as well.
Many platforms such as MemberMouse offer a ‘save the sale’ feature. This allows you to reach out to customers who are about to cancel recurring billing. You can offer them a discount or some other benefit to stay on board. In my experience, this can be surprisingly effective – and every dollar you make this way is free money.
#7. Improve Customer service
If you are not delighting customers with the service you offer, then you are losing money. Too many companies view customer service as merely an overhead – an expense that has to be carried. That is a mistake.
Customer service is your opportunity to interact with people who have actually handed over money to secure your products and services. You need to love these people! Deliver excellent service and they will not only buy from you again, they may recommend your business to friends and colleagues, too. In the world of social media, that really means something.
Trump Your Competitors and Get All the Traffic You Want
When you master the art of maximizing Customer Lifetime Value, you will be in a positon to dominate your niche. You will always be able to outbid your competitors, and even corporates with deep pockets will have a hard time snatching impressions away from you.
Facebook has the ability to connect you to almost everyone who might want to buy your product or service. When you max out your CLV, you have the ability to reach many more of those prospects and still make a healthy profit.