Putting a Price on Your Customer Data: What’s the True Value of Your House File?
A company’s house file has always been considered the cornerstone of every direct marketing effort. This detailed snapshot of customers and prospects carries the potential to be one of your organization’s biggest revenue builders. But even though this carefully sourced data may be accurate and up to date, in the case with all house files, the data you’re working with is not created equal. To truly leverage your house file, you must clearly understand your customers’ lifetime value (LTV) — and how easily that value can be influenced.
What constitutes value?
LTV is relatively simple to determine within your house file data. The basic premise: identify the expected sales that your company should gain over a period time following a customer’s initial purchase. Be sure to separate the expected LTV from the initial purchase, as each has its own profit/loss.
Most of the time, we look at the value in terms of a new customer’s first 12 months dealing with your company. The 12-month demand is not equal across all acquisition sources based on how you acquire a customer and what promotion channels were used throughout the buying period. You may find that the source of acquisition can play a larger role in the future value of the relationship.
You can also track customers via their original source year after year, to forecast the likelihood of existing buyers to make additional purchases from your company. This calculation assumes you’re maintaining buyer purchase history over time.
How to use LTV
Once you’ve accurately determined the value of your house file, it’s time to use that information to your advantage:
Track customers. Tracking can reveal who your best customers are and where they’re coming from, so you can determine the best areas to spend your marketing resources.
Facilitate smarter acquisition strategies. Customer LTV helps establish the amount your company can afford to spend on acquiring a new customer, so you can aim to recoup your investment as quickly as possible.
Build new benchmarks. If you want to grow future value, these calculations allow you to take a closer look at key metrics that drive success, including:
- Cost of goods
- Cost to fulfill an order
- Average order value
- Repeat purchase activity
- Response rates by customer segment and media
- Number of contacts per customer, per year
Evaluating the shifts in LTV
Changes in the value of your customer base are most likely attributed to acquisition strategy, including the sources and channels used in the process. So, when determining the LTV of your house file, ask yourself the following:
- Is there a significant shift in the distribution of my customer file?
- When evaluating performance, does the shift align with the make-up of my customers?
- Have I evaluated the performance of various channels and spotted a decline that couldn’t be explained?
Making smarter decisions for both short- and long-term success
Without an LTV analysis, you risk expensive unintended consequences as you shift your marketing budget between various channels. By understanding — and trusting — your customer data, you can strategize accordingly based on accurate LTV and make more informed marketing decisions.