While many CEOs of mid-market manufacturers and distributors would like to both calculate customer lifetime value and actively market to prospective customers with a high potential lifetime value, few are able to do so today – because their organizations lack the necessary informational infrastructure required to build a comprehensive, highly-targeted marketing program.
The primary goal of a mid-market CEO is to grow gross profit dollars for his or her organization, while constantly balancing both short-term and long-term profit expectations.
However, most managers lack strong reporting tools to give them visibility into the future profit expectations of the company. Of course, quarterly or monthly financial statements are an absolute necessity in order to determine the historical profitability of the firm. Yet, these statements project future earnings based upon some percentage guesstimated increase or decrease from the previous period, instead of looking into actual customer behavior to determine profit expectations.
Calculating Customer Lifetime Value
Calculating customer lifetime value allows marketing teams to focus their efforts on acquiring as many high profitability customers as the market for their product and services allows. For each dollar a marketing team spends on promotions – be it search advertising, email newsletters with coupons, or radio advertisements, the goal is to maximize the return of gross profit dollars on that promotional investment.
The calculation for customer lifetime value is straightforward – it is the expected sales for a customer over his or her lifetime, minus the costs of goods, acquisition and promotional costs, and any overhead associated with the customer. The lifetimeof a customer is different for each organization. For a distributor of home goods or furniture, the customer lifetime might be very short: a handful of frequent, high-value repeat purchases from a couple furnishing a new apartment. Other lifespans might be longer: a retailer might buy from the same distributor for thirty years, because of a strong personal relationship and fair service and pricing. In an ideal world, you would like a customer to purchase from you for life; in reality, it is more like the Roger Sterling quip: “The day you sign a client is the day you start losing them”.
Despite the relative straightforwardness of the calculation, marketers often find it difficult to perform because they are unable to access all of the underlying financial data required to perform the calculation. The organization might maintain cost of goods sold, customer service costs, and marketing and promotion costs in an application owned by the finance team, which might restrict access to the data for marketing purposes. Furthermore, lead source and customer data might be stored in a siloed CRM application, which might exist independently or with limited connections into the company’s financial or transactional system.
Because NetSuite is a unified application encompassing CRM, ERP, and eCommerce functionality, organizations using the application are able to store all the necessary lead, customer, transaction, and cost data required to calculate customer lifetime value. The marketing and finance team can work together to construct saved searches (or KPIs) for the system to calculate customer lifetime value by lead source and display it on their respective dashboards. Organizations can restrict access to underlying data points, yet still allow the results of the calculation to be accessible to the necessary players.
Getting to Customer Lifetime Value with NetSuite
NetSuite’s unified ERP, CRM, and eCommerce components give marketing and finance teams the ability to track customer visits, transactions, and costs, all in a single system. Furthermore, the platform includes a host of features, such as marketing campaign emails, campaign-email response tracking, search engine keyword campaigns, promotions management, and custom fields and entities to track specific customer behavior data.
In addition, NetSuite is capable of managing certain marketing tactics related to customer lifetime value, including assessing Recency & Frequency scores for each customer, calculating customer lifecycles, generating a Customer Friction Map, and finally, calculating and managing Customer LifeTime Value.
Over the next few posts, we will lay out ways organizations can use NetSuite’s unified ERP, CRM, and eCommerce, in order to develop laser focused marketing campaigns that maximize profitabilityreturned to the business. The end goal is to provide a roadmap for businesses to get to customer lifetime value on the NetSuite platform. When NetSuite’s unified CRM, ERP, and eCommerce are working together, the platform is able to fire on all cylinders and generate meaningful marketing campaigns specifically designed to maximize overall profitability for the firm.