Customer Lifetime Value and Why it’s Important for Your Marketing

BY IT GLUE | July 06, 2016

Before we get started, what exactly is Customer Lifetime Value (CLV)? What is it used for? Customer Lifetime Value is a projection of the total amount of money that a client will bring you throughout their relationship with your company. It provides you with a great platform to decide how much money you should spend to acquire clients, and how many clients you need to bring on per year in order to make the profit you want.

If you are in charge of marketing in your MSP, then you know that many IT businesses can be a bit hesitant when it comes to creating a dedicated marketing budget. This is because word of mouth, recommendations and referrals play a massive role in the marketing strategy of many MSPs, and it can be difficult to create a marketing budget based around these kinds of processes.

However, having a clear budget is essential. While it can seem like a daunting process, creating a comprehensive budget is a whole lot easier if you have a clear CLV to work with. In this blog I’m going to run through four questions that you should ask yourself before creating a marketing budget for your MSP.

What is a CLV in ‘normal’ people terms?

Here is an easy-to-understand example of a CLV (for us mere mortals): If a potential client comes on board for 36 months at $4,000 per month, you’ll receive $144,000 from them in total. Based on this, what are you willing to pay to acquire that customer, and how many customers do you need per year?

Simple huh?

However, if your inner nerd is just screaming to get a look at an actual algorithm, OMETRIA provides us with a pretty in depth look at the maths behind a CLV here.

Without a clear CLV you could spend three months nurturing and acquiring a new client, one you expect to stick around for a good couple of years, only for them to leave soon after. This means that you have used three months worth of time and management that could’ve been pumped into a marketing budget geared towards attracting the right kind of clients for your MSP.

The essential checklist….

Before you create that marketing budget, you need to ask yourself these questions:

1. Do you know and understand your ideal customer?

Identifying the ideal client for your MSP is essential. You need to do some market research and identify exactly who your target market is. Creating personas for each of your different client demographics is an integral part of the marketing process and will help you keep the target market’s wants and needs at the front of your mind.

2. Do you know how much your ideal customers are worth?

This will vary from client to client, but you should have a ballpark figure that you use for potential customers. How much money will they bring to your company per year? And how long do you expect them to stay with you? This will help you calculate your CLV and plan your budget

3. What are you willing to pay per customer acquisition?

Once you have established the CLV of your ideal client, say it’s $144,000 – how much money are you willing to spend in order to acquire each one of these clients? This is where you should begin working out your marketing budget. If you’re unsure about how exactly to calculate it, and need a little assistance, use this marketing budget template from Synx that will make the calculations a walk in the park.

4. How long are you spending chasing clients vs attracting clients?

If you’re spending more time going out to look for clients than you are trying to get them to come to you, then you need to revise your marketing strategy. A great inbound marketing process is based around drawing your ideal clients to you – rather than outbound marketing, which requires you to ‘chase’ your ideal clients.

If you don’t believe that inbound marketing is the way to go, have a look at the incredible stats provided by Hubspot’s 2015 State of Inbound Report, which show that “3 out of 4 marketers across the globe prioritize an inbound approach to marketing.” 

Once you understand and have a definite CLV, you can create a comprehensive marketing budget. Remember to organize your financial information, select where you want to spend your budget and then once the budget’s been in place for a while, review your data (see what’s working and what isn’t) and make the necessary changes. 

About the Author

Charles McKay is founder and CEO of SYNX, a B2B digital marketing agency based in Australia. Charles is focusing his work on Marketing Automation, Demand Generation, Lead Generation and Social Selling. Prior to SYNX he built a very successful IT Business from the ground up. He is bringing advanced technology skills to digital marketing, and the ability to explain it simply to his customers.

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