LTV business scaling

What is customer lifetime value, and how does it impact my business?

What does LTV mean, and how does it impact my business?

LTV stands for customer lifetime value, and measuring it can revolutionize your business.

Most businesses determine their ad spend based off their return on investment from said ad spend. Unfortunately though, many people calculate the return on ad spend (ROAS) exclusively based off the initial order value. If you calculate your ROAS exclusively based off initial purchase value, you are most likely missing out on explosive growth, just like our client Danette May. See the video below to hear more about their story:

As you can see from that video, knowing the true lifetime value of their customers made all of the difference for them. They couldn’t scale that funnel reliably without increasing their budget; but they thought that they couldn’t increase the budget on the funnel and still have an allowable ROAS. They had made all of these calculations based off the initial order value though. By widening their scope and tracking the lifetime value of those customers, they realized that they could still get an allowable ROAS even if they increased their budget.

Upon increasing their ad spend, they were able to scale up that funnel tremendously and they went from 15 sales per day to over 200 sales per day in less than a month. Since this video was recorded, they went as high as 600 sales per day and are now averaging about 300 sales per day. That is the power of knowing your true customer lifetime value.

How does LTV impact finance?

While LTV in and of itself can completely change the way that you view customer journey’s and their acquisition costs, the true power of customer LTV comes when you combine it with a few other metrics. Once you know the true value of your customers, the next thing that you need to know is the true cost of goods sold on what you sell. To get the true cost of goods sold for your products, you need to roll in everything, legitimately everything. You need to break down the cost of every employee, all of your overhead, every cost that your business has needs to be tied into this metric.

Once you know the true LTV of your clients, and your true cost of goods sold (COGS), you can now start to look at how much money you make off each client and each product that you sell. You may find that on some funnels you’re not profitable off the initial purchase, but that the clients come back and repurchase multiple times over several months, making that customer profitable overall. From there, the finance team can determine acceptable timetables for profitability. Some businesses have funnels that they know will not turn a profit for several months, but they know that it will be profitable within a certain acceptable time frame for them as well.

Once you know the acceptable profitability time frame, you can begin to work out an acceptable cost per acquisition, which leads us into our next section:

How does LTV impact marketing?

Now that you know the path to profitability and the timeline for it; you can begin to look at how much you can acceptably spend on advertising costs. By studying your cost per acquisition (CPA), you can understand how much ad spend you will need in order to get one person to convert. From there, you can rework this into your established cost of goods sold, and look at your timeline for profitability. We recommend that you find the absolute maximum allowable CPA, and then make sure that you stay underneath that threshold.

The next step in your journey is to get even more granular in how you measure your customer lifetime value. Since your allowable acquisition cost is based off the lifetime value of your clients, it makes sense to break out the lifetime value based off where they came from as well.

In this next video, we show you exactly what that looks like.

As shown in the video, clients who come from different referral sources behave differently. They may be interested in different things based off the type of content that drove them to your site. This will affect the items that they buy, and in turn, their lifetime value as your customer. You can also take this analysis even further by segmenting your customer LTV based off the initial item that they purchased.

How can I start tracking the LTV of my customers?

The hardest part of finding the true LTV of your customers is extracting all of the data from all of the disparate systems. The average small business uses at least nine different systems to track different things, though many have more than that. In order to get a clear picture on the true LTV of all of your customers, you need to gather all of that data. This is a tedious, difficult process known as ETL (Extract, Transform, Load).

The first step of ETL is data extraction. It takes a lot of time to extract data from all of the disparate systems, but it’s rather simple to do. From there, you need to make sure that all of the data meshes together properly. This leads us into the transformation stage.

Transforming data requires a lot of time and mental energy to complete. Each system tracks things differently, so you have to go through and realign the data to make sure that it matches properly between the different tracking systems.

The last stage is the simplest stage and, generally speaking, the one that everyone jumps to. The load stage consists of taking your new, clean data and loading it into a visualization tool so that you can see all of the information that you have gathered in one place.

Many people jump straight to the load phase and get a data visualization tool without having the previous two steps, and that leaves them with a pretty dashboard that doesn’t tell them anything new. The process of ETL is VITAL for you to find your true LTV and of paramount importance for you to propel your business forward.

If you need help with this, we have helped countless businesses go through this process. Simply fill out this form, and we can talk about the unique needs of your business and how we can help you turn your data into growth: https://praxismetrics.com/talk-to-a-data-expert/

Encompass Health Data

How Encompass Health became data rich

What does data have to do with medicine?

Obviously a lot. Just in practicing medicine, doctors need to examine a multitude of data points; but then they also have to run a business on top of that. Every business has their own set of metrics and KPI’s that they have to track, but compounding that with the difficulty of running a medical practice can be too much. That’s where Encompass Health steps in. They help the doctor’s offload some of the office work so that they can focus on practicing medicine, and we help them in that quest.

How did Encompass Health get involved with Praxis Metrics?

Encompass Health was initially just using Domo for their data visualization, but they wanted to get more training on how to best utilize the program. Seeing as Encompass Health is still a small company, they couldn’t afford to dedicate an employee to learning the platform. Contracting with Praxis allowed them to have an outsourced data team available whenever they need, but at a fraction of the cost of an employee. This also allows them to take control of the platform and learn at their own pace, and then whenever they need help, Praxis can step in to help.

How did Praxis Metrics help?

Praxis helped them with the visualization of their data as well as the ETL (Extract, Transform, Load). The process of ETL is to take data that is formatted, reported, and measured differently in disparate systems and standardizing it so that it can be visualized together.

The team at Encompass knew what they wanted their data to look like, and then the team at Praxis was able to execute on that vision. We set up their data as an executive view, with the option to drill down into specifics. In the healthcare industry, most people focus on the executive level summary. From there, individuals may want to drill down into the details; so we set up their dashboards with that option. The Encompass team could set up the executive view, but the Praxis team also created a drill down path for them as well.

What benefits has Encompass Health seen?

Encompass Health knew that they wanted customization first and foremost. The dashboards that we built allowed them to do just that.

Another benefit was the outsourced data team; as they stated, Austin is a powerhouse of an employee. Austin knows data extremely well, and can create almost anything that the mind can conjure.

Being able to take their data on the go, and view it wherever they need to has also helped them tremendously.

What’s next?

Encompass Health has become data-rich, and now they will help their doctor’s become data rich as well. They plan to start rolling out more advanced features for their clinicians, helping them to make even smarter business decisions.

If you’d like to learn more about the dashboards discussed in this video, visit us here: https://bit.ly/2VYgKZq