Today I’m sharing about a topic I’m very passionate about and something that will change the way you think about optimizing the whole customer journey. It’s called Customer Value Optimization (CVO), and it is all about optimizing both the value FOR and OF the customer.
The main problem in marketing today:
One of the main issues a lot of companies are facing is that marketing costs are rising (they have been for a long time) and tracking & targeting is getting harder. All the while, competition is rising and buying habits change over time. Doing the same tricks as before might not work anymore, and throwing more money at it will not solve the problem.
Now, if you look at the best-in-class companies, most of them do not focus on short-term profits (profits not revenue). Instead, they have a strong focus on the lifetime value of a customer!
To maintain sustainable growth, you need to become smarter about your customers and their interactions with your brand.
What is “Customer Value Optimization” and how does it help?
Customer value optimization (CVO) is a methodology, a process, to create a great customer journey and maximize ROI for all marketing activities. It focuses on optimization throughout the customer lifecycle to improve brand loyalty and create customers for life.
It helps us to understand (y)our customers better and uncovers where there are gaps in the customer journey. That way, we can address those gaps and improve the lifetime value of a customer — and with that, the profitability of the business.
Customer Lifetime Value, Profit, and margin, not Revenue
If you’re just starting out with Klaviyo as an (email) marketer, you’ll immediately see how much revenue you can make from email! This is exciting and it gives you immediate feedback about the effectiveness of your efforts. Throw in a couple of coupon codes and you can see transactions go up even higher.
This is great in the short term, but does this help increase the profitability of the business? Does it help to retain customers longer?
If you use paid marketing channels, you already know that you must invest first before you can get an order. If you measure in all costs, this might mean that you need at least 2 orders to make a profit, as seen in the example below.
Revenue alone is not giving a full picture of the profitability of a company.
That revenue should cover all costs (as seen below) which hopefully will result in a profit. As a result, looking at profit is a much better success measurement, and getting customers to come back and buy a 2nd or 3rd time is a good way to do that.
Did you know that raising customer lifetime value by only 5% can increase the profitability of a business by 25% to 95%? (Harvard business school).
As a result, in order to boost profits, you should not simply focus on gaining one-time sales from a campaign. You should also work to increase CLV through CVO.
In a nutshell, CVO is all about becoming more customer-centric!
We need to understand our customers better. We need to understand who our best customers are, what their needs are, and how they differ from the not so engaged (e.g., bought once/exchanged, and returned multiple times and raised 5 support tickets) customers.
Once we do — once we really understand our customers — we will be able to communicate better using their “language”: talking about their problems and delivering a way better service.
Now that we’ve discussed what CVO is and why it’s so impactful as a business, make sure to tune back in to this series next week as I discuss Part Two: Where do you start and how can you do this in Klaviyo?
See you next week!
Learn more about me on my Champion profile page or connect with me for questions or custom solutions on my Partner Page!
Resources Available to Keep Learning from Omar and the Community:
I can’t wait for the second article in the series. Super curious how you use Klaviyo to determine CVO.
This is great Omar — very insightful!
This is great Omar — very insightful!
Thanks. Part 2 is coming soon!