Rent vs. Own: A strategy to improve on Long Term Value (LTV)

LTV Long Term Value

The classic question for real estate can help you dissect your recent customer acquisition performance – do you want to rent new customers or own the relationship with them? The decision may vary based on cost and return on prospecting, but consciously deciding and let you acquire better customers that will drive more long-term value (LTV).

There are many new customer acquisition channels for B2B marketers and they are usually all working simultaneously – sometimes with coordination, most times not. Recognizing how they interplay gives clues to how long-term value can drive powerful changes in contact strategy and greatly increase bottom line contribution.

Digging into the Buyers

Single-channel buyers are more of the exception than the norm. A typical purchasing scenario is catalog receipt, some web-browsing likely preceded by search (paid or organic). Small-to-mid-sized sales get consummated at the website and larger sales often have direct contact with the seller.

This typical purchase scenario works well in acquisition programs for most marketers. The re-purchase rates allow for investment prospecting to recoup initial investment in a reasonable amount of time – 6 to 12 months, typically.

The outlier is the pure PPC buyer. These purchasers behave much differently than any other kind of buyer.

One key metric for B2B marketers is re-purchase rate – the rate at which a new customer returns to make a subsequent purchase. This matters most especially for the marketer who prospects at an investment.

Repurchase Rate
Multi-Channel 25%-35%
Pure-PPC 10%-12%

This isn’t a postal vs. digital debate. It is a waste of time to try to show that one acquisition channel has hegemony over another. Each channel has distinct strengths and weaknesses and determining how to use them in concert is the key to success.

PPC campaigns are great – they can be turned on and off quickly. They have a low unit cost, but require the audience to first seek out the seller.

Contrast this with catalogs – very different. Catalogs are an active communication and can be targeted to the audience. But there is a higher unit cost and a long lead time to execute.

Savvy B2B marketers look at the spikes in web traffic and PPC activity and can correlate these increases with catalog drops. The correlation tends to be both significant and illustrative. Catalogs are an active or a push communication.

PPC is reactive. A person must first decide to search for a term.

So, increasing your PPC bid threshold to correspond to a catalog drop is an effective tactic – it is a prudent investment because more of that traffic is being driven by the catalog drop.

The pure-PPC buyer – who has found your company seemingly without any other means, especially if it is on non-branded terms – will have a very different long-term value as a customer.

As we said earlier, they have a repurchase rate that is roughly about 1/3 the repurchase rate of a multi-channel buyer. The Average Order Value (AOV) is usually less – often by 40% or more.

New Customer Acquisition: Opportunity Cost v Opportunity Lost

It is important when evaluating the PPC to measure the not just the P&L on the transaction, but the opportunity cost. In other words, what other campaigns could have been run with the time and money put into the PPC campaign? What would be the value of those other customers?

PPC is a great part of the campaign mix. It can help facilitate the journey to the website and the transaction. As a stand-alone campaign, it allows you to rent someone’s loyalty by getting a transaction. But as part of a multi-touch approach you could own a longer term, more profitable relationship.

Chris Pickering
Executive Vice President
MeritDirect, LLC
cpickering@meritdirect.com

January 26, 2017

Chris Pickering - Executive Vice President

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