July 26, 2021

A Nice Reactivation Bump in CLV / LTV

Here's a common situation that supports reactivation efforts.

When you acquire a new customer, you might have the following metrics over three years.

  • Future Demand/Sales = $200.
  • Future Gross Margin Dollars = $120.
  • Future Pick/Pack/Ship Expense = $30.
  • Future Marketing Expense = $40.
  • Future Variable Profit (Long-Term Value) = $120 - $30 - $40 = $50.
Overall, you'd be pretty happy with that outcome.

When you reactivate a customer, you have a customer with multiple prior purchases, meaning that the customer is more valuable going forward. Your data looks like this:

  • Future Demand/Sales = $230.
  • Future Gross Margin Dollars = $138.
  • Future Pick/Pack/Ship Expense = $34.50.
  • Future Marketing Expense = $42.
  • Future Variable Profit (Long-Term Value) = $138 - $34.50 - $42 = $61.50.
Would you rather have a customer worth $50.00 in the future, or a customer worth $61.50 in the future?

This is why you work hard to reactivate customers with recency > 12 months.

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