When Onboarding, Focus on Lifetime Value, Not Return on Investment

  |  May 13, 2014   |  Comments

Use onboarding or email welcome programs to try to convert customers into loyal customers - but how do you define a loyal customer?

When is your customer a loyal customer? After how many purchases, visits, months? After how much money spent or referrals made?

Longtime readers will know that welcome/onboarding programs are key to successful email marketing. Many email marketers, however, treat the welcome program as a post-conversion "branding" exercise. A better approach may be to treat it as a pre-conversion program, the "conversion" being to drive that new subscriber or customer to become a loyal customer.

Defining a Customer vs. a Loyal Customer

A customer is usually someone who has made at least one purchase. But ask yourself: "What does a loyal customer look like?"

How many purchases has a loyal customer made? How much money has he spent? How many times has he visited your website or used your app?

Start with an intuitive understanding of your loyal customer definition, and then augment that with insights pulled from analyzing historical data. Profile those customers with the highest lifetime value (LTV) and see what traits they share.

For example, let's say you discover that the top 20 percent of customers (ranked by LTV) have purchased at least twice in the first 90 days of creating an account. Your onboarding program should now be focused on getting new customers to purchase twice in the first 90 days.

Or say that you notice that people who use your app at least once during the 14 days before their subscription renewal is due are much more likely to renew and continue to renew. Now your onboarding program should be focused on driving engagement in that 14-day window.

Onboarding programs, when designed like this, could last for months, years, or even indefinitely. They serve as the bridge from acquisition to loyalty.

Measure LTV, Not Return on Investment

To measure and justify this approach, you'll want to measure your "loyal customer conversion rate." First you'll need to define a cohort - for example, a group of people defined by an entrance date range. Then use the following formula:

Number of people who become loyal customers ÷ Number of people in the cohort = Percentage of people who have become loyal customers

Of course, you'll need to have a clear, measurable definition of what "loyal customer" means for this to be a viable metric.

In the example above, if 1,000 people joined on March 3 and 32 made at least two purchases within the first 90 days after joining, then my loyal customer conversion rate would be 3.2 percent.

For some companies with longer sales cycles, you'll need to extend the measurement of success out over several months or years, so it's not a bad idea to continue to measure traditional measures of onboarding success (i.e. click-through rates and click-to-open rates).

To truly court success, you can extend this concept to all points of the customer lifecycle. Always be asking: "What's the next thing the customer should do?" Then design a program that encourages that customer to take the next step. Never take the fact that the customer has converted once to mean that he will do so again without encouragement.

Image via Shutterstock.

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Justin Williams

As one of StrongView's in-house marketing strategists, Justin Williams helps email marketers develop and implement strategic lifecycle marketing campaigns that are continually optimized to increase engagement and revenue. For the past five years, Justin has applied his expertise in email marketing, social media, web design, and other interactive marketing disciplines across a variety of industries, including retail, finance, media, and technology. In addition to founding his own consulting company, Justin has built go-to-market strategies for early-stage startups and worked with brands like Cisco, Qualcomm, and Geeknet. Justin holds a BA in cognitive science from the University of California at San Diego.

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