Customer Analytics: A Guide to Getting Started (Part 3)
September 18th, 2008 by Doug Bright(Read the entire Customer Analytics: A Guide to Getting Started series)
Yesterday we talked about one of the reasons it’s important to go into your customer analytics intitiative with a well defined goal and a solid plan. So how do you put a plan together to achieve our customer analytics goal?
Step 2: The Plan
It’s easiest to work through an example. Let’s say we’re an online retailer and our goal is to acquire more and better customers without expanding our marketing budget. We already have several marketing intitatives in place to acquire customers:
- Referral Program
- Pay Per Click Advertising
- Affiliate Program
- List Rental
- Sweepstakes
Now we have to put together a plan to figure out how to figure this out. One of the most effective ways to do this is to start with the desired result and work backwards.
Desired result: Rank each marketing program from greatest to least overall profit
3. For each program, find how much overall profit it as provided the company. To do this, we will subtract the cost to acquire a new customer from the average value of a customer over their entire “lifetime”.
2. Determine the cost per new customer. To do this, we find the amount spent on each marketing program and the number of new customers each has produced. No sweat. We probably have spreadsheets with this info already. If not, we may have reporting tools to give us this (especially in the case of pay per click advertising).
1. Determine average value of a customer by marketing program. This is hard. Not only do we have to figure out how to extract the data, we have to figure out how to normalize the data for customer churn and, if we’re really feeling rigorous, our company’s cost of capital. We’ll also need to know the margins on the products our customers are buying because one customer who buys a lot of high margin items may be more valuable than 10 customers who only buy loss-leaders. In short, unless we’re good with SQL and comfortable with the customer lifetime value formula, we’re going to want a tool that can do this for us.
Having gone through this exercise, we see that the only tool we need to achieve our goal is one that will let us calculate customer lifetime value by marketing campaign. The other stuff is easy. So we saved ourselves the stress of trying to source a pricey enterprise marketing solution with a campaign analysis module and have replaced it by looking for a small tactical tool that helps us solve the one hard problem.
There are, of course, situations where the big ticket enterprise soltion is best. If you’ve already gotten value our of customer analytics and are ready to make it pervasive, you may want to invest in integrated, unified systems. But if you’re just dipping your toes in, it’s best to start small.
Next time we’ll go through a plan for using customer analytics to squeeze more revenue out of our existing customer base.
Read Part 4
Tags: Customer Analytics, getting started
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