Optimizing to Lifetime Value of Customers to Maximize SEM Performance

customer-lifetime-value-increaseAs search practitioners, everything we do is designed with goals in mind.

Depending on clients or the type of organization our goals could be lead generation, sales, traffic or any number of onsite activities designed to engage the customer. In addition, we’re often optimizing toward lowering the cost per acquisition of these events, or driving up the ROI.

Some marketers are getting even smarter with their analytics and tracking ROI against new customer acquisition versus existing customer retention.

While this is great performance-based marketing, what if we could go further, and optimize campaigns towards acquiring the right type of customer, those who buy more frequently, or buy larger ticket items? Wouldn’t you pay a higher CPA to acquire a customer who buys three times a month with no coupons over a customer who comes in once for a great deal?

Credit card companies and savvy direct marketers know this and have leveraged this concept in their direct mail efforts for years. But how can we accomplish this in the search engine marketing (SEM) landscape, especially when we optimize to keyword performance, not customer performance? What do we need to get started?

Step 1: Access Your Customer Database

Your customer file is rich with data. It’s likely able to be segmented by purchase behavior, such as frequency of purchase, average order value and promotional usage.

Spend some time with your CRM department to make sure you understand the different customer segments, and most importantly which segments correlate to your most valuable customers. They probably have already identified what the best customers look like, what their lifestyle behaviors are and what factors drive their purchasing activities.

Get to know who your best customers are, and who your worst customers are.

Step 2: Understand Your Allowable Acquisition Costs

You probably have a good idea of what your average allowable cost per acquisition is because it’s your performance benchmark or target currently. Take a deeper look.

If your top customer segment spends 4X of the average customer each year, what if you paid 3X the average CPA to acquire this customer? Your ROI would increase 25 percent the first year alone.

Also, what if your worst customer only spends a fifth of the average? Cut your CPA to 20 percent of the average for this customer segment in order lift overall program ROI. By creating unique acquisition targets per customer segment, you can create compounding increases in ROI.

Step 3: Sync Campaign Data With Customer Data

Depending on your campaign tracking tool and or conversion page, the key attribute may already be passing back, or you may need to marry the two data sets into a single file for optimization purposes.

It’s important to note here, that rather than adding campaign metrics to your customer file, you want to create a new file which combines campaign metrics and key customer attributes tjat identify the customer segment. These attributes may include customer ID number, existing versus new customer field, products ordered, geography or customer segment type (if this information already exists).

One common segment defining attribute is product type. For example, in the hospitality industry, customers who reserve suites are more valuable than those booking single rooms as the room rate is higher. On the flip side customers who stay just a single night on average are deemed the least valuable customers.

Step 4: Optimize Your Keywords Against Customer Value

Once your campaign data is appended with your key customer attributes, you can now calculate keyword level CPAs by which to optimize your campaigns.

Identify the keywords which drive the best customers and maximize your campaigns there, while dialing back spend on terms which deliver the worst customer types. But, that’s easier said than done, because a keyword (especially brand and/or generic terms) can deliver multiple customer types.

How do you evaluate a keyword which delivers multiple customer types? You’ll need to develop a blended action model which calculates the value of a keyword by determining the percentage of conversions at each customer value, to get a relative value of the keyword.

You’re now on your way to using customer value in optimizing your SEM campaign performance for increasing long term ROI!

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