Insights from Lee Hill, MD and co- founder of Insightful

Customer lifetime value - the core business metric we should all focus on

It was July 2020. Covid had been with us for months and changed the way we all lived and worked. Many businesses were in survival mode and at Insightful we had lost 40 per cent of our clients. We were focusing on getting to grips with how we could support clients in this new world.

How could we help clients achieve more sales with a reduced budget, fewer resources and web visitors? The answer was increasing customer lifetime value. Customer lifetime value is a measure of the average customer’s revenue generated over their entire relationship with a company.

By having clear plans to generate more income from current customers, it helps alleviate the pressure and necessity to always bring in new customers. To show the value, let’s look at the numbers. Here we have a business that has implemented plans to improve four key metrics (see figure one): • Web conversion – improved from 1% to 2% • Average order value improved from £100 to £120 • Frequency of purchase in a year improved from two to three • Retention improved from two to three Yearly income has increased by over three times and lifetime income by over five times with slight improvements to four key metrics. In order to achieve this, you need a plan for each.

Fast forward to today and we are yet again facing uncertain times so yet again businesses are looking for a

Lee Hill MD & Co-Founder way to achieve more with less demand for their services. We believe a focus on customer lifetime value is the answer.

Now let me take you back to show you how I first helped a business use these metrics to rapidly grow.

It was 2009 and I’d just landed my first senior role working for an emerging insurance brand.

On day one I was tasked with doubling online sales within six months. As the business was under private equity management, the pressure was really on to deliver results quickly.

My measure for success was easy – to drive digital sales and as many as I could for a cost per acquisition of £100. If over £100 it would break our business model and reduce our profit.

We were spending a decent sum on PPC and other channels can be implemented to drive more traffic but unlikely to cost in at £100 or less. I therefore needed to figure out how to drive more traffic whilst getting the cost per quote down.

The only answer was to increase our web conversion. I sketched out a landing page specifically for PPC and sent it to our web agency to develop so we could test it. It was an instant success and very quickly our PPC web conversion increased.

This reduced what it was costing me currently to generate a quote using PPC and meant that I could introduce more expensive PPC keywords whilst still achieving an average £20 cost per quote.

Within six months PPC spend had increased from £20k per month to £150k with the web conversion improved from 19% to 38% to quote, with digital sales on average costing £100. More importantly I had more than doubled sales. With work to introduce more channels such as SEO, email, affiliates etc and holding retention rates at 80%, revenues rocketed and sales tripled.

After 2.5 years with the business we were acquired for £58m. The key to my success was not focusing purely on driving more traffic, but also on increasing web conversion, average order value, frequency of purchase and retention rates. ww.insightfulux.co.uk

figure one:

Visitors Per year

Web Conversion

New customers

Average order value

Frequency of purchase in a year Yearly income Years of retention Lifetime income

100,000 1% 1000 £100

100,000 2% 2000 £120 2

3 £200,000 2 £400,000

£720,000 3 £2,160,000