4.3 What can I do with audience metrics? - Video Tutorials & Practice Problems

<v ->So what kinds of things can you do with audience metrics?</v> Well, one thing you can do is you can identify who your most valuable customers are. Now, why would you wanna do that? Well, if you know who your most valuable customers are, you might hit them with different marketing messages or different offers. And so understanding who your most valuable customers are, could actually be a way of segmenting your market so that you are actually getting more out of your marketing. So how would we do that? So if we think about what makes a customer the most valuable, it's a combination of providing high revenue, but being low cost to serve. So they're basically cash cows. They give you a lot of money, but they don't demand very much from you. And that's who's in the upper left hand quadrant of this chart, the most valuable customers. Now, if you look just to the right of that, you see the Royal customers, those customers provide a lot of revenue to you as well, but they are very demanding. And so you can think of them as maybe the Royal pain customers, because they asked for a lot. And so they are very valuable because they still provide tremendous revenue, but they also demand a lot from you. And so they're not as profitable as those very most valuable customers. Now, in the lower left hand corner, are your casual customers. They don't provide that much revenue to you, but they also don't demand very much. So they're still profitable. The customers you might wanna fire are in that lower right hand quadrant, the high maintenance customers, they're the least profitable. They might even be unprofitable, because they don't provide you a lot of revenue, but they're very demanding and they require a lot of resources on your part to serve them. And so, what do you do with this kind of information? Well, you can use this information to figure out how to target people as we talked about before. But the other thing you can think about is are there ways of migrating customers to more profitable quadrants. So is there something you can do to get those casual customers to buy more from you? Is there something you can do for the Royal customers to make it easier to serve them? Maybe if you found out what their complaints are about, maybe there are things you can fix that would cause them being easier to work with. And those high maintenance customers, they would be valuable if they moved in either direction. If they actually moved up in the charts because they were buying more from you, or if they move to the left in the charts so that they weren't as demanding. And so thinking about strategies to migrate customers from less profitable to more profitable sells in this chart, that's actually a very important use of this information. Another way to segment, is with something that's been used in direct marketing for decades called the RFM model. So RFM stands for recency, frequency, and monetary. So recency means, when is the last time the customer ordered? So if you can segment all of your customers by the most recent order that they've placed with you, that is a way for you to understand that those customers might be more valuable than customers who have not placed an order in a long time. Similarly, with frequency, how often does the customer order? Can you segment your customers based on frequency of order and monetary? How much are the orders worth? So obviously customers with higher average order values are more important than customers with lower average order values, but you can use these in combination. So the customers who have ordered the most recently, who tend to order with the highest frequency, and order with the highest order values, those are actually your best customers. And so that's a way of targeting customers, when you have a business where relatively frequent orders are the norm. Now, if you have a business where relatively frequent orders are not the norm, or you have a car dealership or you sell some pretty expensive product that people only replace every once in a while, then this model might not be the best for you, but if you have regular order contact with your customers, this one can work really, really well. Now, if you don't have all of the data to use the full RFM model, you can just use recency. Recency all by itself does maybe 60, 70% of the value of the entire model, and so if that's all you've got that can help give you an estimate in a situation where otherwise you wouldn't be able to use the model at all. Now how do we measure lifetime value? Lifetime value means the value of a customer over their lifetime as a customer to you. Now, why is that important? Well, if you think about it, if all you're doing in terms of trying to understand how much to spend on your marketing is you're focusing on that first sale. Well, if you're a car dealer that might work really well, but suppose you're a dentist, it doesn't make sense that your marketing expenditures should be focused on getting a couple of hundred dollars for a cleaning. Because what you know is that once you get someone in that chair the first time, you do a good job, and they're gonna come back maybe for an average of a couple of visits a year, and they're gonna come back maybe for three years, five years, seven years, who knows how long your average customer will stay with you? Well, actually you do. And that's what this is about. This is about estimating the net present value, so the value of the money today of all of the sums of money that a customer will pay you over the lifetime that they're with you. And that's what you should be basing your marketing expenditures on, is how can you acquire that customer that will then give you all those future revenue streams. Now you can look at this chart and you can see it's fairly complex to calculate lifetime value, which is also known as customer lifetime value. So you might see it abbreviated LTV, or maybe CLV, And you can see on the left of this chart, a number of bullets that talk about all the different factors that go into calculating lifetime value. And so you might do a simplified version of this, but the point is the same, understanding what your customer's worth to you, is a very important piece of data about your audience, and that piece of data is what you can use to figure out not only who to target, but how much you should spend on the marketing for them. Now, maybe it's too hard to calculate this, so can you simplify lifetime value? For some situations you can. So you might have data that shows how often people return and make purchases, and you can maybe classify people into people that come back more than once, maybe people that come back more than twice, as opposed to people who are one and done. And so by trying to classify the data that you have, it might simplify your ability to estimate customer lifetime value, because even having an estimate that's directionally correct, even if it isn't perfect, can give you a lot stronger decision-making than if you ignore this completely.