Let's say I want to move 13-24 month 1x buyers to a second purchase.
How much might I be able to spend to make this happen?
In our table, the average 13-24 month 1x buyer is worth about $13.50.
In our table, the average 0-12 month 2x buyer is worth about $71.65.
Intuitively, you might say that you gain $58 of value, so you can spend a fortune.
There are two things we need to know.
- Actual repurchase rate of 13-24 month 1x buyers.
- Incremental percentage that we will convert with incremental marketing activities.
- Percentage of demand that flows-through to profit.
Let's pretend that the annual repurchase rate of 13-24 month 1x buyers is 10%. Let's also pretend that we can increase the 10% annual repurchase rate to 12% by performing various marketing activities. Finally, let's assume that 35% of demand flows-through to profit. We now have the pieces necessary to determine how much we can invest.
Look at the "Marketing Cost" line ... you could invest an additional $0.77 per customer, and if you can achieve a 20% increase in repurchase rate, the math yields more profit.
This is how a modern marketer can leverage lifetime value style metrics to improve business performance. In our example (assuming that we can truly get a 20% increase in repurchase rates by marketing more to a customer), we are able to grow the active 2x buyer file - and that's a good thing, right? These customers will spend a ton of demand next year.
Have your analytics team run this analysis for you today. If they cannot run the analysis for you, contact me (email@example.com), and I'll gladly do it for you.
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