Creative Brains Marketing

to increase LTV using PPC

The lifetime value (LTV) is the average of all revenue generated during your entire relationship with a client.

It can be hard to improve the KPI, even though it sounds great. To do so, you need to think long-term and have a thorough understanding of your database.

This article explores four levers that PPC advertisers can use to improve LTV.

Why is LTV so important?

For several reasons, the customer lifetime value is a key metric that businesses in various industries should use.

LTV evaluates your potential

LTV is valuable even before you start a business. LTV allows you to better understand your typical customer, which in turn can translate into your potential growth.

Let’s say, for example, that you are interested in starting a new business. You’re unsure whether to start a coffee machine business or a realty agency. It’s a big split, but I’m just trying to illustrate my point.

You might assume that the LTV for a client of an estate agency is much higher than for a seller of coffee machines.

Let’s assume that your client purchases one coffee machine to serve 50 employees. Each employee drinks two cups of coffee per day. (At $0.20 each because you priced them so low.) Let’s say that these clients are loyal for 30 years (228 days of work per year). Your LTV would be close to $137,000. That’s not bad, is it?

Real estate agencies “only” sell a primary home once (on average) in their lifetime. Since real estate commissions aren’t extravagant enough, it is safe to say that you won’t exceed $137,000.

Bottom line: LTV only helped you to gauge the value of two different markets.

LTV is the key to growth

LTV helps you to shift your thinking from transactional-based thinking towards the long-term value that repeat customers can bring.

A higher LTV = greater profits (on the medium- and long-term). A higher customer value impacts the bottom-line directly.

It also means long-lasting, peaceful business relationships. These relationships are also less expensive for many departments, including HR, finance, logistics and customer service. ).

You can use LTV at the audience level to identify structural flaws.

If, for example, customer type A leaves faster than type B, then it is likely that your product (or service) isn’t competitive enough/good-enough for type A. Why?

LTV can help you identify your best customers and translate that into your best products/services. What are the best practices to be taken away from this insight.

LTV also helps you determine your target cost of customer acquisition (tCAC). You can easily calculate a CAC target if you know the average revenue that you’ll generate from a client. You only need to subtract your cost of goods (COGS), and so forth.

Calculating LTV

You’ll likely find something about customer lifetime if you search for “LTV formula”.

It makes sense, but it is hard to find this information in the usual marketing datasets (analytics CRM etc.). ).

Let’s start by looking at the KPIs that we all know:

Lifetime value (LTV) = average order value x total transactions / unique customers

It’s easy to get started. It’s worth checking out “LTV enhancements”, as they offer interesting extra value.

Benefits rather than revenue

LTV is fascinating. If you ask CFOs they’ll tell you that revenue is not the most important thing.

Benefits helps you to understand the “real value” of each customer, product, etc.

Here’s how to convert LTV into LTB or lifetime benefits, which is what I call it (this is not a KPI, but my interpretation):

Lifetime Benefits (LTB) = CAC x LTV

CAC is your cost per net new customer. The COGS is your cost of goods.

Define the customer relationship length

What is “lifetime”?

When do you stop counting the “total transactions?” When can you consider a client churned with confidence?

You have several options for churn rates.

If you’ve been around for a long time : Use historical information and remove outliers. This will give you an idea of the average lifespan of a customer.
Use scenarios to help you if you don’t have enough experience or data. This is a rough draft, but it’s at least a place to start.

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Four levers PPC professionals can use to increase LTV

Now you can use the LTV formula in order to find creative ways PPCs could improve your business’s performance. We can break down those formulas into 4 elements.

Average order value (AOV)
Total transactions per unique customer
Lifetime
Costs (CAC & COGS)

You can increase your LTV by pulling and pushing these levers. Let’s look at them one-by-one:

1. Improve AOV

Many marketers are tempted to cut prices in the hope that it will increase conversion rates and revenues.

In some cases it is true, but in most cases it just decreases the AOV and hurts businesses. Remember: benefits trump revenue every single day.

How do you know that you can make improvements?

You can use historical data to compare conversion rates with sales periods (lower AOV).

I have seen flat conversion rates in some cases and AOVs that are lower, which makes you question the sales’ relevance.

You have the data to convince CMOs and CEOs that they need to change their strategy.

Basics of Account Management

One alternative to reviewing media spending with AOV is to use the following:

What is the performance of search terms that contain “bargain,” discount,” “cheap,” etc.?
Low-cost products are reducing your shopping budget.
Do you have a copy with pricing information? How does your copy compare to other copies?
Could you AB-test landing pages? You could compare single products with bundles.
Does your tracking of purchase value include discounts and taxes? Are you inflating the results?

Price increases

A price increase is another obvious way to boost your AOV. Do not go overboard. A 5% price increase is unlikely to be noticed by your customers. You should at least align your prices to inflation.

If you cannot control the prices, you may want to remove those Shopping SKUs that are priced a little lower than comparable products. This will allow you to focus your budget on only the slightly higher-priced ones.

Don’t assume that items with low prices don’t belong in your product mix. Make sure that they do not steal the thunder from more expensive items.

2. Conversion rate increases

Upselling to existing customers

PPC marketers tend to ignore customer retention, because their managers push them to acquire more customers. It is easy to forget that selling to existing customers can be much easier.

You can fix this by targeting existing customers with a Customer list in Google Ads or Meta Ads. Provide them with additional value:

The ad copy is different and highlights the deeper features
Different landing pages that convert them faster
You could offer a product that includes extra accessories, which they may not have purchased yet.

Be creative. You have so many more transactions data that it can be a goldmine to PPC marketers.

Cross-selling warm prospects

Cart abandoners can be targeted with similar tactics. Are you utilizing dynamic retargeting campaigns, for example?

These campaigns use your shopping feeds in order to show the exact products that people have added to their cart.

This is a great feature, but it offers very little to your customers except for keeping them in mind.

Try cross-selling by advertising additional products that are similar to the category of product your prospects have visited or added.

3. Review your customer journey

One way to reduce the time it takes you to make a purchase is by reviewing your journey.

Sending your PPC traffic the right landing pages, for example.

You could send the same people to another page that is further down the funnel, or one that is more specific to your products, audiences, keywords etc. ?

There are many ways to increase conversion rates. For more information, check out these other Search Engine Land articles:

Get clients to return

Check out my guide to retention. More generally, retention is directly related to your product or service and the perceived quality.

Reviewing the product churn rates per line is a very useful thing to do.

You may want to change your campaign structure and product feed if you find that most of your media budget is spent on high-churn products. This will help to direct more of your budget to higher revenue over the long run.

You can also ensure that PPC data is fed into your CRM or ERP (if possible).

You can then use this information to improve your business strategies.

In the end, it’s about identifying who your best and worst customers are. You want to avoid the worst customers and attract more people who like doing business with your company.

4. Reduce your costs

You can improve LTV here by reducing the CAC. You have several options. The easiest and most effective is to review your media mixture.

I have had many clients use expensive channels without measuring the incrementality.

It means that they haven’t “really”, measured the impact of their marketing. Here are some resources that will help you get started with incrementality measurements.

You want to reduce or cut budgets for channels that are not performing well and allocate more funds to the top performers.

Reviewing Quality Score (and Meta Ads’ equivalent: Ad Relevance) is another simple tactic that I recommend. The lower your CPC and CAC will be the higher these metrics.

Continue reading to learn more:

COGS is not the topic I am referring to, as it covers a wider range of topics than PPC. It’s a natural part of the discussion.

PPC can help you maximize customer lifetime value, and increase profitability.

LTV may be a moving target, but it is crucial for any business. Ask a team about their LTV to determine the level of skill they have.

You’ll know if they mention OLED screens and 4K displays!

I recommend creating a dashboard for LTV that includes the following factors: average order values, transactions per client, customer retention and CAC.

You can then easily prioritise your efforts, and have your marketing team focus on improving LTV.

The first Search Engine Land post that appeared was How PPC can increase your LTV.

Tagged PPC