What is Customer Lifetime Value and How you can use CLTV in Facebook Advertising?

• Amol Ghemud
• What is Customer Lifetime Value and How you can use CLTV in Facebook Advertising?
• Published: August 14, 2018

Contributors: Amol Ghemud
Published: August 14, 2018

Summary

Understand the significance of Customer Lifetime Value (CLV) in Facebook advertising, detailing how it can be calculated and utilized to optimize ad targeting. CLV helps businesses understand the long-term value of customers, guiding more efficient marketing spending and strategy. The article offers a step-by-step approach for leveraging CLV to improve Facebook ad campaigns, including creating LTV Custom Audiences and value-based Lookalike Audiences for better targeting.

There are thousands of entrepreneurs who struggle every year to find out the growth of any company. In the course of these discussions, managers come up with all kinds of numbers, measures, and metrics that illustrate the development and achievements of a particular company.

However, the metrics might not be the best gauge of what’s truly happening inside your company or people may use distinct definitions of the identical metric in a manner that makes it hard to apprehend the goals of the business.

Learn which metrics can help you to evaluate your marketing efforts.

Out of all important metrics, Customer Lifetime Value is an essential metric, about which you need to know everything.

What is Customer Lifetime Value?

Customer Lifetime Value (CLV or often CLTV), Lifetime Customer Value (LCV), or Life-time value (LTV) is a prognosis of the overall profit attributed to the entire future association with a customer.

Customer lifetime value can also be defined as the money value of a customer association, based on the present money value of the predicted future cash flows from the customer relationship.

Why Customer Lifetime Value is an important metric for your business?

If you want to grow your business, then you need customers. Obviously.

Consider the possibility that you do your business by concentrating on the wrong customers, or spending excessively to get a solitary client. Be that as it may, how would you know?

Everything returns to the main question: What is that customer worth to you?

This little query will characterize the amount you spend on marketing, the sorts of custumors you can reach, and how much cash flow your business makes. It’s truly damn imperative.

If you don’t know the Lifetime Value of your customer, this can cause your business a lot of problems.

Understanding the importance of Customer Lifetime Value: this crucial metric will help you answer key questions related to your business:

1. Economical way to acquire customers
2. Turn Visitors into Customers
3. Converting One-time customer into Lifetime Customer.

Let’s turn Your Visitors into Leads and Your Leads into Customers. Let’s speak soon!

Advantages of Customer Lifetime Value:

Based on the calculation of Customer Lifetime Value, you can take various actions to increase revenues.

Though your goal will ultimately point to a common goal of growing your business and gain advantages from the resulting calculations. Lets take a look at benefits of calculating Customer Lifetime value:

1. Effective Customer Segmentation
2. Better Forecasting
3. Retention/Win Back of Customers
4. Findings channels gain new customers
5. Better marketing that focuses on your customer.
6. Gain More Sales

Finally, How to Calculate Customer Lifetime Value ?

When calculating CLV there are many nuances to consider based on what the specific questions are that you want answered.

But the most straightforward way to calculate CLV is to take the revenue you
earn from a customer and subtract out the money spent on acquiring and serving them.

Calculate Customer Lifetime Value Formula:

Calculate Customer Lifetime Value = (Annual revenue per customer * Customer relationship in years)                                                                                                                                                  –                                                                                                                                                                                          Customer Acquisition Cost

Customer Lifetime Value Example :

Let’s Look at Customer Lifetime Value example….

Customers paid : 1000 per month
Average time that a person remains a customer : 3 years.
Lifetime value of each customer is (according to the formula above):

Rs 1,000 per month x 12 months x 3 years = 36,000.

This means each customer is worth a lifetime value of 36,000.

Concept of Customer Lifetime Value with example: 

Facebook Lifetime Value Audience Feature

Facebook : About customer lifetime value

Customer lifetime value is a numeric representation of the net profit you predict will be attributable to a given customer over the duration of your relationship with them.

Breaking it down into a few factors:

1. How often a customer makes a purchase within a typical purchase cycle
2. Calculate cuustomer spends each time they make a purchase
3. How much you project a customer will spend over the duration of your relationship with them
4. The potential length of a customer’s relationship with you

Advertisers shouldn’t use their prediction for any one of theabove factors alone as a representation of a given customer’s lifetime value.

Advertisers are expected to combine each relevant estimation into a formula appropriate and suitable to their business goals and use the result produced by it.

For Facebook advertising, customer lifetime value is especially relevant for value-based Lookalike Audiences. If you add a customer lifetime value column to a file you’re uploading to create a Custom Audience, you can use that Custom Audience as a source for a value-based Lookalike Audience.

That Lookalike Audience will then be made up of the people most similar to your highest value customers. A regular Lookalike Audience (one that does not take customer lifetime value into account) can only find people similar to all your customers.

What if your business do not track customer lifetime value ?

Advertisiers can still use Custom Audiences(in facebook) and Lookalike Audiences to reach their customers and people similar to them. However, they won’t be able to use value-based Lookalike Audiences.

Importance of customer lifetime value in Facebook?

Advertisers can upload their customer lifetime value data as part of a customer file Custom Audience. They can use that Custom Audience as the source for a value-based Lookalike Audience, which is a group of people to target with ads who are most similar to the high-value customers they already know.

What to avoid when calculating customer lifetime value?

Different people calculate customer lifetime value in different ways. Here are some ways that you should avoid if you’re going to send us the data for use in a value-based Lookalike Audience:

Rating your customers.

Say you have 3 customers worth $100, $10 and $1, respectively, and you use a 1-5 rating system. Don’t send data to facebook where they’re rated as a 5, 2 and 1, respectively. This won’t work because the value isn’t proportional to the ranking. In other words, the $100 customer was factored by 20, but the $10 customer was only factored by 5 and the $1 customer wasn’t factored at all.

Ranking your customers.

Say you have 100 customers and each one is worth between $200 and $1200. You rank them from 1 to 100. This won’t work because value isn’t proportional here either. It tells Facebook, if one customer is more valuable than another, but doesn’t account for a scenario where the number 5 customer is worth double what the number 6 customer is, whereas the number 20 customer might only be worth 1% more than the number 21 customer.

Once you’ve calculated your customer lifetime value data, what should you do?

Upload the data as another column in a customer file you use to create a Custom Audience.

Below are tips for formatting the data, similar to the tips for other identifiers in the first section of this article:

1. Facebook accepts customer value as a positive number.
2. Don’t provide only the highest valued customers. Try to include broad ranged value customers.
3. By providing broad ranged customers Facebook distinguishes an avergae customer from the highest one.
4. Don’t include negative numbers. Facebook wo’nt recognise these customers as undesirable customers.
5. If value of an customer is in the form of a currency, make sure it’s all the same currency or is converted to the same type of currency before uploading.
6. Decimals that denote cents are acceptable, but don’t use any other punctuation marks and/or separators.

Steps to use LTV Custom Audiences in Facebook :

1) Including LTV in a Custom Audience :

To get started creating a Custom Audience with a customer value data column:

1. Go to your Audiences.
2. If you already have audiences, click the Create Audience dropdown and select Custom Audience
3. If you don’t have any audiences, you’ll see audience creation buttons rather than a dropdown.
4. Click Create a Custom Audience.
5. Click Include LTV for better performing lookalikes.
6. Accept Facebook’s Value-based Lookalikes Terms.

From there, there are 5 parts to creating your Custom Audience:

1. Add Customer File :
   1. Click Upload File and select your customer file. If you choose to copy and paste, do so in the “Paste your content here” field.
   2. Give your audience a name and description if you want to.
2. Select Customer Value
3. Edit Data Mapping
4. Hashed Upload & Creation
5. Hit on the “Create Lookalike” Button or,

2) Creating a value-based Lookalike Audience

With your source audience ready:

1. Go to your Audiences.
2. Click the Create Audience dropdown and select Lookalike Audience
3. For your source, choose the Custom Audience with a value column you created
4. Choose the country where you’d like to find a similar set of people
5. Choose your desired audience size with the slider
6. Click Create Audience

3) Measure your performance

Now that you have LTV Lookalike Audience in Facebook, you are ready to build ads and campaigns around it, test performance and optimize to maximize Return On Ad Spend (ROAS) just like with any other Facebook campaign.

This audience will be of great use to marketers to cash on the capability of their ongoing marketing efforts taken on their existing online and offline list of customers.

Do you still have difficulty to find out customer lifetime value? Or are you stuck o how to use it based on what types of results are you seeing? Any questions, drop in the comment section below. 

About the Author

Amol Ghemud

Optimizer in Chief

Amol has helped catalyse business growth with his strategic & data-driven methodologies. With a decade of experience in the field of marketing, he has donned multiple hats, from channel optimization, data analytics and creative brand positioning to growth engineering and sales.