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

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  • Pat McCarthy
    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
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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 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?
      >
      > Thanks in advance,
      >
      > Mitko
      >
    • Jim Novo
      ... 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
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        > 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
        the business.

        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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