Sales Funnels CLV Segmenting ROI 2017
Sales Funnels CLV Complete Understanding of A Customers Lifetime Value. Why does customer value matter?
Your sales funnel depends on a number of working parts. One that often causes confusion is customer value.
SALES FUNNELS & GROWING YOUR BUSINESS
Maybe that’s down to the different terminology that goes with it. Possibly it’s because when you introduce maths into the mix. Allot of people prefer to ignore the topic and focus elsewhere.
That’s easy to do because each part of your sales funnel seems to scream out for attention. Each part seems to be equally as urgent to deal with. But the truth is, understanding customer value will streamline your
business. In a manner that allows you make predictable assumptions about your income. It will also tell you how much you can afford to spend. Manufacturing and marketing your product to make a profit from it.
SALES FUNNEL REPORT
The focus of this report is how to understand and calculate customer value. In a step-by-step manner that cuts through the jargon. Helping you finally get over the hump of learning. What you may have considered easier to ignore in the past.
There are terms that can seem vague, because when you start out measuring CLV. You have no definite data to work with and a lot of your calculations are based on assumption. Something we’ve all typically been told not to do.
Customer Lifetime Value is a gauge of how much a customer will spend. With you over the duration of time they spend as your customer. It’s important that you take the view that your customer isn’t a sale, but a
person. You have a relationship with over a period of time, that results in several sales during that time.
Some customers stay with us for long periods. Others fall away after a single purchase. That’s why we typically don’t view CLV on an individual basis. It’s a term we use for the average value of our entire customer base. Understanding this point alone. Should make a lot of what follows much easier to comprehend.
UNDERSTANDING SALES FUNNELS
Understanding the sales funnel
If your sales funnel costs you £50 and your customer lifetime value is anything less than that. Then you are already
losing money. However if you main product is valued above £50 we are in profit.
Loss leaders assume an ongoing relationship with the customer. So shouldn’t be focused on one such instance.
From this observation alone, it becomes obvious that the path to greatest profitability. Will come from streamlining your sales funnel so that the cost of maintaining it is far below the CLV for every lead.
Remember that each lead costs you money to acquire and nurture them. This isn’t a once off calculation – you will need to maintain, a steady rate. Of lead generation.
It’s also worth remembering, that there is more than one theory. On how to calculate the CLV.
For now, let’s consider the marginal profit of a purchase. That’s the profit made from a single transaction. Where just one additional unit is made and then sold.
If you make those famous blue widgets for a pound a piece. You then sell them at £2.50, your marginal profit would be £1.50.
BENEFIT OF USING MARGINAL PROFITS IN YOUR CALCULATIONS
The benefit of using marginal profit in your calculations. Allows you make some profit assumptions without previous information. About the typical lifetime revenue your customer might bring in, over their lifetime.
Most businesses sell a variety of products and/or services. So an average should be taken of each purchase made.
Having found the average profit per transaction, you next need to look. At how long your customer is likely to stay with you – or the Customer Retention Rate.
CUSTOMER RETENTION RATE
This is an important part of our CLV calculation. To begin, you’ll need some data to go on – this is why establishing an effective sales funnel. Is an ongoing task and should be approached with patience and tweaked and analyzed over time.
Your customer retention rate is very easy to calculate. It’s the percentage of customers from last year, who have done business with you.
If you had 100 customers last year and 96 of those customers purchase from you. Again this year, that’s a retention rate of 96%. This percentage calculation becomes more accurate over time. There are two models of CLV – don’t let them confuse you. They make sense based on the data you have available to you, at any given time.
One is the Historic CLV, and the other is the Predictive CLV. Historic CLV is the profit from a customer over the previous span of their customer lifecycle. It’s a good rough guide as to what their CLV is, but when armed with ongoing data. The Predictive model, where future value is assessed from current value is a far superior one to use.
A simple formula for understanding CLV requires a knowledge of
• Average profit generated per customer per year
• Number of years they have been a customer
• Cost of customer acquisition
Which allows us to use a simple formula to determine CLV:
Average Profit x Years as a Customer
Cost of Acquisition & Customer Segmentation
Next, we need to look at customer segmentation. If we are to effectively acquire and nurture leads to change the balance of the equation. Customer segmentation shifts the focus from a general average cost per lead. To a more focused costing. It can be done in several ways according to customer demographics. Behavior, geographical, and more.
According to your market research, what segmentation makes the biggest difference to your product sales?
If you are a sports car manufacturer. Demographics such as sex, age and salary are likely to be deciding
factors. If you sell rain wear, geography is likely to be a deciding factor. So for instance if you sell contraceptives. Behavior based on attitudes to safe sex will be a deciding factor.
SEGMENTING YOUR CUSTOMERS
Consider segmenting your customers according to your products. If each product serves a differentiated market.
The UK Store Tesco, have traditionally been a grocery store. Despite failing to branch out into the United States, they have successfully expanded. By way of their goods and services, to include such things as cell phone carrier services.
House insurance, and even banking.
This is a clear examples of products that would define their customer segmentation.
It’s possible to really go down the rabbit hole with segmentation and take it to the level. Where you include behavioral data, such as those who remain customers. After two years, spend over three times as much as
anyone else with you. Or that the percentage of your market base who drive cars above a specific value. Tend to stay longer with you. There are an almost endless array of segmentation options.
Starting with product differentiation and basic demographics is enough to start. After that, it’s once again, test, test, test. Keep looking for connections between your customers’ behavior
THE HOLIDAY SEASONS
One aspect of your segmentation that often gets overlooked is the seasonal one. Holidays such as Christmas or Thanksgiving. Summer vacations and even weekend events such as Black Friday, may have an effect. On your specific product sales.
Customer Retention Your sales funnels clv – Most businesses understand that whatever the costs of customer retention. May have associated with it, it is less costly than customer acquisition.
But those costs may have an impact on your sales funnels CLV. Such factors as discounts and perks used, to keep customers on board. These can soon add up so keep an eye on it.
The impact of such factors is felt as an average across all customers. Not just those to whom they apply, just in the same way as the average spending .By customers is calculated across all products.
Got your CLV calculated? Here’s how you can expect it to benefit you
1. You now have a baseline figure to measure all future marketing metrics against
2. Then pin point where your funnel needs additional support
3.Now have a clearer snapshot of your marketing ROI
4. To an extent you can mathematically predict the effects of changes to your pricing
5. Balance short term vs. long term financial needs and goals
6. Define what each part of your sales funnels clv contributes to the overall outcome
7. Manage customer relationships by understanding which of your customers have the greatest value
8. Better target ideal customers based on demographic, behavioral and psychographic data
9. Reduce customer dissatisfaction by implementing change based on your findings
Due to a combination of variables that remain specific to each business entity. It’s is difficult to get a real picture of the sales funnels clv until sufficient time has passed. After a sales funnel has been put in place.
Neither is there any way to accurately gauge what amount of time can be considered sufficient. Ultimately businesses should bear in mind that sales funnels CLV is a process. As much as it is a tool and that the only way to assess it effectively. Is to test and analyze the process with different variables over time.
This Comes To The End of My Sales Funnels CLV Mini Report