LTV: What it Is, What It Means for You, and How to Increase It

LTV, or lifetime value, is the ultimate number to measure for direct to consumer brands, as it is a metric used to calculate how much a customer is worth to you over the lifetime of their relationship with your company. LTV should be calculated on an individual basis for each consumer as it will vary from person to person and will drive how you choose to interact with each consumer. By focusing on LTV, you can ensure that you are growing a profitable consumer base for the long-term rather than focusing on short term metrics like driving an initial sale, or worrying about the average order value. You want every customer interaction to be positive to reduce the likelihood of churn and increase repeat purchases, which will lead consumers to become brand advocates who cannot imagine buying from anyone else.

Ways to increase LTV, upsells, cross-sells, churn reduction, and incremental revenue

There are many ways to increase LTV and keep your customers happy and loyal. Here are a few:

1. Upsells - Direct to consumer brands have previously thought they could attract a customer with one un-profitable or low-cost offer and work to upsell them to higher priced or high margin products over time. If effective, this would be a great way to increase LTV, as you are deriving more money from a consumer over time. The challenge with this approach is that customers are initially sold on one value-proposition and it can feel as though the original offer is a bait and switch, which will hurt your relationship with the customer or just result in fewer customers taking up your offers.
2. Cross-sells - Cross sells operate in a similar manner as upsells, however, the goal is to offer complimentary products that are logical extensions of something the customer is already buying from you. In the case of a shoe company, perhaps they try to cross-sell socks to customers after they have begun purchasing shoes. This has its upsides, namely if you are able to offer a product that is so logical and complimentary that it is a no-brainer for the consumers. However, again, you still have the challenge of convincing customers to trust you to provide a new product or solution they weren’t originally looking for from your brand.
3. Churn Reduction - It is common knowledge that it is cheaper and easier to retain a customer than it is to attract a new customer. Companies attempt to reduce churn by offering loyalty programs, discounts on continued purchases, or by amazing them with great customer service. The challenge here is attempting to predict when a customer is going to churn and figuring out what to offer them in order to get them to stick around. 
4. Incremental Revenue - You might be thinking that all of the above are ways to drive incremental revenue, however, what marketers often overlook is that when you upsell or cross-sell, you are often simply shifting dollars from one pocket to another and it is very difficult to prove incrementality, which is key to driving an increase in LTV. One of the best ways to drive incremental revenue is by reaching customers that you have not been able to reach previously via a new, high engagement channel. To that end, SMS commerce is the most effective channel to-date. 

None of these solutions matter, if you can’t do it profitably or with a positive ROI. This is why brands have been so reliant on email marketing to-date, it is one of the most cost effective ways to send messages in bulk to all of your customers. However, over the years it has been used so much that consumers have become quite adept at ignoring emails. This is why introducing a new channel like SMS messaging that includes the ability to purchase directly within the message is so important. Over 97% of your messages will be opened and you will see returns on investment of 15x or more! 

CONCLUSION

Now that we understand what LTV is and the many ways to increase it, the next step is figuring out the best way to implement these types of solutions. The key to all of the above is removing barriers for your consumers and ensuring they have a frictionless experience. As a consumer facing brand, you should be focused on getting your messages in front of the right consumers, at the right time, on the right channel. So what are you waiting for? Start focusing on incremental revenue and watch your LTV soar! Want to see a 15x ROI? Try TextWorks!