## Re: [webanalytics] Life-time value of a visitor

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• There is definitely worth in calculating lifetime visitor value. If you aren t taking lifetime value into consideration when determining how much you can
Message 1 of 4 , Aug 31, 2004
There is definitely worth in calculating lifetime visitor value. If
you aren't taking lifetime value into consideration when determining how
much you can spend to acquire a customer, you could actually probably
afford to spend more on customer acquisition. Some businesses say
their average order value is \$X amount, so they can afford \$Y amount per
click based on their conversion rate in PPC ads to acquire a customer.
But if they haven't factored in that customers can make repeat
purchases, they can probably afford to spend more to acquire a customer.

However, one should be careful with this. I've noticed that our
lifetime customer value can vary drastically on where we acquired the
customer from. For example, a customer who found us through a PPC ad
has a different average lifetime value than a customer who might come
from a certain partner link. So, the best thing to do is calculate the
lifetime value by acquisition source. Then you can truly determine how
much you can spend on that particular acquisition source to acquire each
customer.

--
Pat McCarthy
Executive Producer - Palo Alto Software
http://www.paloalto.com

Mitko Gerensky-Greene wrote:

>
> Hello all,
>
> I wanted to throw in a question which will inevitably lead to a
> discussion:
>
> What is your take on calculating the life-time value of a visitors?
>
>
> Mitko
>
• ... I m not sure careful is the right word to use here, though in this context I understand the meaning since many are new to this concept. LifeTime Value is
Message 2 of 4 , Sep 1, 2004
> However, one should be careful with this. I've noticed that our
> lifetime customer value can vary drastically on where we acquired the
> customer from.

I'm not sure "careful" is the right word to use here, though in this
context I understand the meaning since many are new to this concept.
LifeTime Value is always properly used in conjunction with "source"
information, since source accurately predicts average LTV. Source has
several components:

1. Media bringing them in, as pointed out above.
2. Message bringing them in - ad content, keyword phrase, offer, etc.
3. If retail, product of first purchase
4. If content, first content topic or group consumed

They are what they eat. How you "create" a new visitor / customer, the
experience surrounding the new customer event, contributes directly to the
future value of the visitor / customer. Best practices in this area:

1. You should feature or put items / content on the home page that create
multi-buyers / multi-visitors. These items / content are not usually the
same items / content that have the best "conversion rate", though they can
be, and items / content with both traits should be a cornerstone feature of

2. You will never get a more significant opportunity to increase the LTV
of a customer than "first transaction". For example, in retail, the first
package should have a "welcome kit". Offline, a good welcome kit can
increase 2nd purchase rate by 20%. In our online lab store, it increased
2nd purchase rate 30%. This is a ton of money to leave on the table,
knowing about 40% of 2nd purchase will complete a 3rd, 40% of 3rd will
complete a 4th, and so on. If a content site or service site, the
usability of forms, the "thank you" page content, the confirmation e-mails,
all of these transactional elements serve the same role as a welcome kit.

The objective here is "surprise and delight", or at least "better than
expected" on the first transaction. This leads to a higher likelihood of
continued transactions. No matter what kind of site you have, you will
benefit from putting some effort into creating a better than expected
experience on first transaction, even if the objective is not continued
transactions (some service sites, branding sites), since the brand
impression is significantly impacted during first transaction.

Even online, you never get another chance to make a first impression.

Media / Message / Item / Content combinations that generate visitors /
customers with low LTV should either be cut back and budget reallocated
towards higher LTV transactions, or if the revenue generated is
significant, special follow-up programs should be developed for the
visitors / customers created in low LTV transactions.

The second option is usually the most practical unless you work in an
environment where the LTV concept is well understood by managers.

Jim
jim@...
http://www.jimnovo.com
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