How to Calculate a Basic Lifetime Customer Value

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• The program targeted 22,500 owners of companies in selected types of businesses (by primary SIC) that employ 10 or more employees and generate $1 million or more in annual revenues.
• Quarterly mailings were sent on behalf of independent contractors who chose to participate in the program..
• When a business owner responded to one of the mailings, his (or her) name and address information was  removed from the lead-generation mailing file.
  • 2,643 responses were received.
  • Cumulative rate of response based on the number of individual prospects = 11.11%
• Total number of fully qualified leads that provided building and/or expansion plan. information = 1,220 (46.1% of all responses).
• Total number of sq.ft in new buildings or expanded facilities identified by prospects to the mailings =                     22, 207,888
  • Average sq.ft. size per project = 18,797 sq.ft.

Criteria for a Fully Qualified Sales Lead 

• Indicated a positive attitude in favor of owning versus leasing.
• Identified the company’s current situation: Owned or leased
• Disclosed his/her company was planning to construct new or expand an existing facility.
• Specified a time frame they planned on building (e.g., six months, one year, two years, etc.)
• Owned or did not own the land on which the company intended to build
• Identified the approximate size of the building or expansion thst was being planned (in sq.ft.)
• Disclosed the purpose(s) for the new or expanded facility (e.g., manufacturing plant, warehouse facility, office space)
• Specified if their plans called for a single or multiple-story building
• Told if the company had or had not engaged the services of an architect
• Disclosed the company’s level of familiarity with engineered building systems
• Disclosed the company’s level of familiarity with Roberston Building Systems and the named contractor in their area.

Challenge:

From the client’s 250 independent contractors , identify and recruit contractors with business profiles similar to the client’s top 52 contractors who normally generate 80% of the client’s total annual revenue.

Preferred Prospect Profile:

Larger contractors located in 14Western U.S.states.

Must have experience in pre-engineered building construction

Minimum number of full-time employees = 10

Annual minimum revenue = $500,000.

Targeting Methodology:

Merge D&B and InfoUSA lists to target larger contractors with known pre-engineered building manufacturer affiliations.

Calculated Fact:

Average Lifetime Value of a good contractor is $154,802 based on five-year, 60% retention rate.

Results:

Program produced 224 leads of which 33% were evaluated as being true, fully qualified prospects based on the following information supplied by responding prospects:

• Current association with a manufacturer of pre-engineered building systems, plus the name of that manufacturer and number of years associated;
• If not currently associated with a manufacturer of pre-engineered building systems, has company been associated with one within the past five years.  If so, the number of association years
• Names of the counties in which the contractor is currently doing construction work on a regular basis  
• Types of buildings the contractor has constructed within the past three years  
• Does contractor currently specializes in constructing buildings for a specific industry or industries
• Approximate percentage of the contractor’s business volume that is bid and/or negotiated.  If negotiated, approximate percentage that is design/build
• Is contractor currently working on a project (or projects) for which client could provide an estimate (or estimates)
• Contractor’s present bonding capacity
• Is contractor-owner or a specified person actively involved in pursuing new building projects  If so, approximate amount of time being spent each week in pursuit of new building projects
• Best day(s) and time(s) during the work week contractor-owner is available to meet with a District Manager from the client’s office.

 Expected closure rate was 30% (i.e. 22 new contractors).   

Return on program investment = 708%

1. Those being called on usually resent cold calls because sales people stopping by unannounced implies that they have no respect for others’ schedules. When this happens, sales people reduce their chance of ever meeting these prospective customers.

2. Sales people who have worked elsewhere where qualified sales leads were provided usually don’t stay long when they’re not offered the same. They’ve been spoiled! They’re simply not as productive as before. Even the very best sales people aren’t willing to tolerate high levels of rejection indefinitely.

3. Your overall marketing costs are much higher than other companies where less expensive, effective media are used to identify and qualify sales prospects.

Contact me, and I’ll prove to you how I’ve successfully identified and qualified prospects for companies in a wide variety of businesses. After opening prospects’ doors, these companies’ sales people use their skills to effectively negotiate and close more sales.

Most marketing executives I’ve worked with over the past 30+ years knew precisely where they needed to go in terms of quantifiable year-end goals.  However, they often overlooked setting and achieving quantifiable interim objectives to get there.

After having served as a navigation officer aboard Navy transport aircraft, I realized the discipline I learned in the military could be effectively applied to the development of strategic plans for my clients.  Knowing precisely where we were in reaching our destination was critical should “course corrections” be required.  Landing in the ocean was not an option!

Contact me, and I’ll demonstrate a new economic model I’ve developed to  help clients achieve their goals – effectively and economically. 

By using this tool, you’ll be able to determine exactly how much you should spend to acquire, retain and cultivate customers.  You’ll also know exactly how much you should budget to generate qualified sales leads and reactivate former customers.  Best of all, you’ll be able show other management decision-makers the importance of it – and justify every marketing budget you present from this time forward.

Helping you with this new economic model is simply my way of acquainting you with my firm, a strategic direct marketing resource.

• Must be a relational, normalized database that can be used to assist your company identify marketing opportunities and communicate with customers and prospects more effectively (i.e., send the right message at the right time to the right people) as a means for sustaining customers and increasing Lifetime Value.
• Allow your company and its Strategic partners to be involved in determining the structure and operational uses of the database — including specific tables and fields within each.  This must be a shared effort between your company’s, your Strategic partners, and the selected database provider’s principals and account team members.
• Capture, track, and manage customer behavior data from a comprehensive history of customers’ transactions (detailed and summary), contacts, and responses to contacts.
• Capture, track, and manage comprehensive information about prospect contacts and responses to contacts, plus demographic data derived from survey mailings and external research data..
• Be open to enhancing the database through various processes.
• Integrate CRM programs developed for the acquisition, assimilation, retention/cultivation, and reactivation of customers.  First and foremost, the database must provide the means for targeting communications more effectively and efficiently.
• Be a resource for timely analytical information (profiling and modeling) that allows more efficient strategic and tactical considerations and decisions
• Provide real-time access to database information for your company managers and strategic partners.
• Accommodate all users of the system in a user-friendly manner.
• Provide a basis for evaluating and analyzing all marketing activities, including scoring mechanisms for more efficient targeting and allocation of both sales and communication resources
• Complement current and planned sales force automation.
• Interface with other relevant your company intra-organizational information systems
• Coordinate linkages between customer database and prospect and research databases

 Integration:

• Integrate the marketing system with operational systems – telemarketing contacts, field force contacts, invoices, et.al..
• Incorporate into the existing database, information from other databases

Data Entry:

If data entry is furnished by an outside source, your database must provide the name, location, background information about the source, and data entry procedures.

Data Collection and Sources:

• Collect relevant data about both customers and prospects. 
• Data sources include, but are not limited to, the following:
  • Orders
  • Transaction data submitted by customers, including returns and refunds
  • Inquiries and fulfillment
  • Customer complaints
  • Survey mailing responses
  • Promotional mailing responses
• Enhanced data from outside sources
• Miscellaneous data overlays

Data Hygiene:

• Provide batch reconciliation and source coding for all data input.
• Account numbers must include a check digit.
• Standardize the housefile with the most currentCarrier Routeand Zip + 4 data, using the USPS’s database of corresponding street addresses for improved delivery to addresses.
• CASS certify, validate zip codes, zip + 4 addresses, and create an error file of incorrect zip codes.
• NCOA processing.
• Identify missing information
• Suppress existing customer records from prospect mailings
• Suppress no-mail records and deceased records based on data derived from DMA’s Mail Preference Service and Social Security claims respectively.
• Merge/purge housefile names with outside files, eliminate duplicate records, and print out Exception Reports.  Define the method currently in place for accomplishing this. 
• Provide on-line access to error files and provide ability to correct any fields.
• Standardize and correct abbreviated and/or truncated company names and titles from outside mailing files based on synonym matches (e.g., VP, Vice-Pres. = Vice President). 
• Genderize based on first name for producing proper salutations from each record.
• Correct upper/lower case errors (e.g., Mcdowell to McDowell)
• Process and update weekly.

 Reporting:

• Track and report analysis of responses to direct mail campaigns
• Export results of a query to a file format
• Provide mapping and graphing for review and presentations
• Determine the velocity and momentum for recency, for frequency, and for monetary value.

 Access:

• Provide real-time access for queries from selected company managers and strategic partners, 24/7.  These people, officed in different locations, will access the data remotely through a PC network.
• Allow users to drill down by clicking on an object on a graphical chart.
• Protect specified data from changes by users

 Ad Hoc Queries:

• Reduce paper work and be largely electronic
• Allow managers and strategic partners to ask any question they deem appropriate and  obtain answers to those questions quickly.

 Profiling:

• Determine RFM on a rolling basis (by day) and score individual customers as a byproduct from customer transaction histories (i.e., date of first purchase, date of last purchase, total number of purchases, and total dollars of purchases).
• Arrange customers in a hierarchy (highest to lowest scores) and segment them accordingly  (e.g., by quintiles).
• Rank and score combinations of customer-specific variables that best describes any named segment.  Overlay on non-customer universes to identify qualified prospects.
• Determine Lifetime Value (LTV) by RFM segment.
• Determine the Strategic Value (SV) for each prospect and customer based on variables such as location (zip code and ultimately geo coordinates), type(s) of products used, et.al. (multiplied by a preset factor comprised of data variables)
• Calculate variance by customer between RFM score and Strategic Value.
• Use individual RFM scores as a baseline for determining other optimum characteristics.
• Establish product affinities as a means for determining the likelihood of future purchases of products not previously purchased based on types of products purchased.  The database must provide the means to develop Product Affinity matrices from customer transactions.

 E-Mail Campaign Capabilities:

Select and export records for broadcast e-mail to your company and strategic partner firms.

 Database Security:

• Restrict access to only those users identified by your company.
• Provide system and data backup and recovery procedures

 Training:

• Train all users on the types of ad hoc queries and reports they can make and produce

 Web Compatibility:

• Provide real time integrated connection with your company and strategic partner firms.
• Allow personalized messaging to customers with web site log-on

 Auditing:

• Reconcile recency, frequency, and monetary value for all customers in the database at any given time.

Production Capabilities:

• Offer current imaging technology to produce highly pesonalized direct mail and e-mail messaging.

Contact me, and I’ll explain how to correctly calculate Customer Lifetime Value – the essential marketing metric by which all customer acquisition, retention, and reactivation budgets should be determined. 

 Lifetime Value is the net present value of a customer over a specified period of time, discounted back to present day dollars at an appropriate rate.  By not tying proposed marketing budgets back to Lifetime Value, top management in most companies consider these budgets as dollar outlays without any basis. 

Yet, many marketing people I meet today don’t fully understand the importance of Lifetime Value or how to calculate it.  So if you’re among them, please don’t feel alone.   If you want to learn how, I can help.

Armed with this knowledge, you’ll be able to determine exactly how much you should spend to acquire, retain and cultivate customers.  You’ll also know how much you should budget to generate qualified sales leads and reactivate former customers.  Best of all, you’ll be able show top management the importance of it and justify every marketing budget you present from this time forward.

You’ll benefit from what I’ve had the good fortune of learning directly from working with these direct marketing legends: Martin Baier, Vic Hunter, Ed Mayer, and Bob Stone.  With the rapid rise in e-commerce, measuring results accurately against precise goals has become a necessity.