Building Lifetime Value Is a Long-Term Commitment

Cultivating everlasting relationships has to be a much bigger priority for B2B marketers

By Patricia Yeager

Alex Nabaum/theispot.com

Amid the dizzying array of metrics B2B marketers track, there’s one yardstick they’re giving short shrift: lifetime value (LTV). Less than half of senior executives (44 percent) say they are slightly effective or not effective at segmenting and targeting customer sets with the most potential for long-term value to the brand, according to a recent survey of 150 global marketers conducted by the CMO Council and Deloitte. Perhaps more troublesome, just 68 percent of respondents rate their LTV to cost of acquisition (LTV:CAC) ratio as average, below average, or very poor.

B2B marketers ignore LTV at their own peril. While often overlooked, the metric is critical, no matter how difficult to track. What’s more, in light of dramatic changes in B2B buying and selling, value creation and LTV are now top of mind within the C-suite.

Indeed, a majority of CEOs (53 percent) leverage LTV to drive strategic decisions, as well as many heads of sales (49 percent), line-of-business leaders (44 percent), chief revenue officers (35 percent), and chief experience officers (18 percent), according to the survey. So why the disconnect with marketing?

Tom Stein, chairman and chief client officer of Stein IAS and chairman of MSQ B2B, says the disconnect boils down to the inherent complexity of applying LTV — traditionally a B2C metric — to B2B. “A lot of B2B companies are not looking at it,” Stein says. “They might have proxies for it that are more relevant to them, but it might not be lifetime value.”

He adds that purchasing-by-committee, which has become the norm in B2B buying, may be another obstacle. “It could be multiple buying units that are geographically dispersed, or dispersed across business units, or are dispersed across divisions within business units,” he says.

B2B sales cycles, which are typically long, also keep B2B marketers from pursuing LTV, says Noah Elkin, VP analyst at Gartner and the co-chief of research for its marketing & communications practice. “But everything that we’ve seen would suggest that the cost of sales is significantly lower among existing customers, and oftentimes B2B businesses neglect the opportunity to really think about marketing as a continuous process,” he adds.

 

The ABM Model

Elkin notes that account-based marketing, which more and more business marketers are adopting, may play into LTV nicely. “Our best customers are our existing customers,” he says. “Let’s do everything we can to try to, at a minimum, retain them and, at best, upsell them to complimentary products or solutions an organization is selling.”

“Every time anyone at a B2B company talks about ‘lifetime value,’ guess what they’re doing? They’re doing an inside-out way of measuring the metrics. But what you really want to do is an outside-in approach to look at the value you can bring to the customer.”
— Ash Parikh, SVP and head of marketing at Informatica

Trey Morris, VP and senior consultant at The Center for Sales Strategy, agrees. B2B marketers, he says, “have become experts in customer acquisition analytics and marketing metrics. But they do not fully grasp the idea that customers not only represent actual spending power in the current year but also the long-term effects of return purchases for years down the line.”

Another roadblock: CMO tenure, which typically lasts 43 months. “They are not there long enough to see the ramifications of their marketing strategy or campaigns,” Morris says.

The onus to make LTV a priority is particularly acute considering how democratized B2B buying has become in the last several years. Industry observers agree that getting marketers to understand how they can provide lifetime value to customers is part of the solution.

“Every time anyone at a B2B company talks about ‘lifetime value,’ guess what they’re doing? They’re doing an inside-out way of measuring the metrics,” says Ash Parikh, SVP and head of marketing at enterprise cloud data management Informatica. “But what you really want to do is an outside-in approach to look at the value you can bring to the customer. What you really want to do is to create a map of what your offerings can provide. I would call it a value map, which runs in parallel to a customer’s journey.”

 

Understanding Management’s Intent

The good news is that B2B marketers are tapping into new customer insights, but there’s ample room for improvement. While most customer engagement comes by email, the more effective communications and insights occur through service and support interactions, with a combined 74 percent of marketers saying support is extremely or very effective at deriving data-driven insights from consumers, according to the CMO Council-Deloitte survey.

To draw meaningful LTV insights, marketers need to redesign LTV so it better reflects “the empowered digital customer in relation to the company,” the CMO Council-Deloitte report says. Factors to be considered include customer segmentation, discount rates, cost of acquisition, revenue per user, transactions per user, commercial metrics, and penetration frequency.

Parikh recommends persona-based intent tracking, which enables companies to identify a person’s role within a company when he or she visits their website. This way, marketers can deliver more tailored content and spark a conversation with a specific customer.

Understanding a company’s management intent is also key, Parikh says. For publicly traded companies, B2B marketers can learn the background, plans, and goals of the board of directors and management of a prospective customer through public documents. “It’s a digital world,” he says. “You have to be able to do this today.”

Deciding which metrics to apply to LTV can be murky. While most B2B marketers in the CMO report rely on revenue per user (66 percent) and transactions per user (45 percent), respondents also cited sessions per user (26 percent), session duration per user (18 percent), and page views per user (17 percent).

Parikh says that the aforementioned metrics are critical, but is quick to add a few more: net new customer, customer loyalty, and customer retention.

Morris says that many B2B marketers have intuitively adapted an LTV mindset amid the pandemic. “Brands must recognize that and adapt accordingly,” he says, “or they will lose a customer and the long-term value of a repeat customer.”

 

Loyalty Works Both Ways

Stein says acquisition-level marketing was dialed back at the height of the outbreak in the U.S. last year, as B2B companies put a greater emphasis on supporting existing customers. As more Americans begin to return to the office, companies are starting to switch up their marketing strategies again.

“I think it’s super important that we stay true to [supporting existing customers] because it made marketing more important, and made B2B marketing more important in general, and brought sales and marketing closer together for the greater good,” Stein says. “That’s one of the big takeaways from COVID that probably does circle back to lifetime value or lifetime enterprise value or however you want to slice and dice that metric.”

Ultimately, the most likely route to spurring more LTV might be awarding ownership to it. A lot depends on the organization, of course, but marketing and sales executives must play a significant role, along with data systems analysts.

“It’s marketing, sales, service, customer experience,” Elkin says. “I think there has to be an organization-wide strategy that really sets out a goal for the organization, and then translates that goal down to individual departments. Everyone is playing their part, but they’re all contributing to the whole.”

 


 

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