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Unprepared Ep 68 - Why Ecommerce Brands Shouldn’t Ignore Customer Lifetime Value with Daniel Budai

Timestamp

  • [00:00] - Sponsor: Rewind
  • [00:53] - Intro
  • [01:08] - What is a retention marketing agency? 
  • [02:07] - What is a lifetime value? 
  • [04:06] - How LTV applies to business
  • [05:45] - How to use LTV within your marketing spend
  • [07:29] - What happens when brands neglect LTV?
  • [09:14] - Other ways to calculate LTV
  • [10:13] - Theoretical and analytical part of LTV
  • [12:07] - Where to find Daniel 

Resources

Key Points

  • The Budai Media focus on retention marketing and customer lifetime value (LTV) for Ecommerce businesses.
  • Customer Lifetime Value or Lifetime Value (LTV) are stats that are tracked to indicate how valuable a customer is to your business based on the revenue you can get from them from an indefinite time. 
  • They work on getting back the returning customers and increasing their average order value (AOV).
  • If a brand has a certain amount of traffic, they can track them to come back and buy from the brand.
  • Tools like Klaviyo is useful not only for email but also for their CRM. You can check what each user purchased in the past. 
  • If your business is 6-12 months old, you can calculate with 1 year of LTV. The software/AI can tell you what to expect or what the future LTV from that customer in the span of 1 year.
  • If businesses don't know about LTV, they leave big money on the table because they don't focus on returning customers and they don't get a big part of the market.
  • A lot of young brands and some mature brands are short-sighted in the direct response of their ads. They don't consider the LTV and it sabotages their own marketing spend and how much they get from the market.
  • Aside from Klaviyo, you can also use Shopify's Lifetimely where you can see cohorts, changes, and different segments while the other tool is Reveal by Omniconvert.
  • Brands are encouraged to use email marketing, SMS marketing, loyalty programs, and Messenger marketing. If you implement them properly and connect them with each other, it can help your brand scale up.

Transcript

Chase Clymer  

Hi everybody, my name is Chase Clymer, and welcome back to another episode of Unprepared -- an Honest Ecommerce bonus episode where we hear expert advice in 15 minutes or less. 

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Chase Clymer  

Alright, everybody today we have an absolute treat, Daniel from Budai Media is joining us today and his team is amazing at LTV. You know, they consider themselves retention marketing specialists. And you know, let's just get it now. 

What does that mean? What is the retention marketing specialist agency? What do you guys do?

Daniel Budai  

Sure. So hey, everyone, I'm glad to be here. Thank you, Chase. 

And retention, marketing, and Ecommerce retention marketing, that's our primary focus. And we help only Ecommerce companies. So basically, we can see many guys doing ads and traffic, they are great at what they do. But actually, that's not what we do.

What we do is focusing on lifetime value, and Ecommerce businesses getting returning customers and also increasing their average order value. So that's our primary focus. 

If somebody already has a certain amount of traffic and quality traffic, then we can help them to get those customers to come back and buy again and again [until] they are satisfied. 

So a bit about LTV and how it should be calculated and what it is actually. Let's think about Starbucks. So one coffee in Starbucks, I guess it depends on the country, but it's like four or five, six bucks, something like that, which is not a huge amount. And probably if you know, if people went to Starbucks only once in their life, then it would be really hard to build up this business. 

But what people do, they come back, they go back to Starbucks almost every day. Many of them. So the lifetime value, one customer spends around $12,000 during their lifetime in Starbucks. And Starbucks really knows it because I think this year, they just became 50 years old as a company. So they have a lot of data, they really know these numbers. 

And if a company really knows this number $12,000 one customer, then they can say "Okay, so let's spend two $3,000, maybe even more for only one customer, so they won't drink Costa Coffee or something else, but they will drink Starbucks their whole life." 

So that's the simplified equation of lifetime value. And we really focus on this with our agency and also customer retention rate and all of these important numbers. And probably, you know, I guess most of the listeners, they don't have a 50-year-old business. 

So if you just started your store a few months ago or maybe even a few years ago, then you might ask okay Daniel, but we don't have this huge historical data and the lifetime of a person it's you know, almost 100 years. So a really long time. And then you may ask, "Okay, how does it apply to my business?" 

So in practice, what we can see is that if your businesses are at least six to 12 months old, you should calculate with one year of lifetime value. So if you use two, let's say Klaviyo which is a great email marketing tool. In their CRM, you can click each user, each subscriber and you can see what amount, what value they purchased in the past, and how many times.

And based on that, the software can tell you the future lifetime value. What the software expects, the AI expects, they will spend in the next year. So you can say the historical data and the expected future spending and by adding them up you will see their whole lifetime value, basically. 

So if you use Klaviyo, the software will show you these numbers. And what is amazing about Klaviyo is you can even segment your email list and your SMS lists based on this lifetime value. And you know you can communicate with the different segments differently.

Chase Clymer  

That's amazing. 

Daniel Budai  

Yeah. 

Chase Clymer  

When we're talking about lifetime value and, you know, Starbucks example, they've got $12,000 as their projected lifetime value of their customers. How does that translate into a marketing budget? 

You touched on it a little bit. But I really want to nail this point home to understand why LTV is important. And why this is essentially why brands that are scaling go into so much debt and acquire so much you know, capital to do so. Once you kind of understand the lifetime value, how do you use that within your marketing spend? 

Daniel Budai  

Exactly. So yeah, there are pros and cons. But I think those businesses who don't know LTV, they leave a lot of money on the table because they don't focus on returning customers. And they don't get as big part of the market as they could if they would take this into account. And big companies, VC-founded companies, take this into account, the LTV. 

So you know, I think if you want to keep up with your competition, it's a must to do really. People, business owners, Ecommerce business owners, shouldn't ignore this. If you know, for example, your LTV is, let's use a smaller number valve. 

12K is a really good LTV, but I don't know like $1,000, $2,000 in the next one year, then you can spend a relatively high amount to get customers. Make up the number, you know, calculate your numbers. I don't want to say anything specific. But you can do the math and you will see how much you can spend.

Chase Clymer  

Awesome. Yeah, we'll get into some math in a minute. But essentially what I want to point out here is a lot of young brands and some of the more mature brands, too, are very short-sighted in the direct response of their ads. And they don't take into consideration the LTV. So they will actually sabotage themselves on their marketing spends and how much you know, penetration they get in the marketplace because they are only looking at like I'm only making this return on my Facebook ads, and just ignoring the returning customer rate and the LTV stuff. 

And all of that plays into the equation of how you actually scale. And if you're only focused on direct response, it's very short-sighted. And you know, you're not going to see the best results.

Daniel Budai  

Exactly. So if you just take a look at the ROAS, and you know, ROI of your ads, then it's going to be a short game, let's say. Yeah.

Chase Clymer  

Yeah, that's why you see all those giant, you know, new, really well-branded direct to consumer companies just all over your feed because they are basically taking a loss on that first sale because they know that they're going to make up for it afterward because they've done the calculation of their lifetime value. And they know exactly what they can spend to acquire a customer.

Daniel Budai  

Exactly. And you can use industry data as well. So you can take a look at other companies having a similar business model or being in the same industry. And all of that.

Maybe even in other industries if the customer lifecycle is similar. For example, bath products, baby products. I think they are quite similar in many respects.

Chase Clymer 

(Laughs) 

Daniel Budai

So which is quite interesting, but you can see similarities. Yeah.

Chase Clymer 

Awesome. So we talked about it a little bit earlier, like a rough way to calculate your LTV is using Klaviyo and finding the historical data of what they've already bought. And then what the AI projects. 

Are there other ways to calculate it? And then are there things that people need to consider about their business model that might affect their LTV calculations?

Daniel Budai  

So if you have a Shopify store, I highly recommend checking out Lifetimely. With two clients, we started using it. You will see cohorts and different segments. It's really useful. You can see the changes by time on different segments. 

And the other tool is Reveal by Omniconvert. Check it out as well. Until January, it was free software. I don't know, I guess it's not free anymore. That was their beta version. But these two are really useful apps or tools for them.

Chase Clymer  

Awesome. Awesome. Now, is there anything I forgot to ask you that you want to share with the audience today?

Daniel Budai  

Sure. So this is more like the theoretical part and the analytical part. But how it looks like you know, every day and how we try to increase this LTV. So once we make our observations and come up with a few ideas, then actually we try to increase this LTV. 

And I really want to encourage everyone to start using email marketing, first and foremost, loyalty programs, SMS, Messenger marketing. Probably these four. These are the four areas for channels, if you implement them properly, and you really connect each four with each other, then your activity will really increase and in many cases, it can double your business and you can scale even quicker and bigger.

Chase Clymer  

Oh yeah, that's amazing right there. Now, I guess if people are thinking about this in more of a traditional three-step funnel approach, all of these efforts that you're making are more in the middle and the bottom of the funnel and it has nothing to do with prospecting or new customer acquisition, right?

Daniel Budai  

Yeah, exactly, exactly. Of course, there are certain ways to attract new leads and new customers in Messenger, you can connect it with your Messenger ads, for example, you can run Messenger ads, people get into your Messenger, and you can message them and you can even ask for their email and phone number. So for example, that's one way to scale with the Messenger. But I would say 90%, it's about the back end and repeat purchases.

Chase Clymer  

Yeah. Those are just bonuses of setting up these strategies is, you know, your by proxy going to accidentally. Well, not accidentally, but you're going to get some more customers out of it. 

Daniel Budai  

Exactly. 

Chase Clymer  

So Daniel, if people are interested in what you and your team do? How do they get a hold of you? What's the best way to reach out? 

Daniel Budai  

Sure. So our website is thebudaimedia.com. Thebudaimedia.com. And we also have a Facebook group. Now it's almost 1000 people. Top Ecommerce Retention Marketing group, we just renamed it. 

And I think these two if you go to our website, you can find a few ebooks about LTV and retention marketing if you subscribe. Or just hit me up on Facebook or LinkedIn. Daniel Budai and let's chat.

Chase Clymer  

Awesome. Thank you so much for coming on. I'll make sure to link to all that stuff in the show notes. 

Daniel Budai  

Thank you, Chase. I really enjoyed it. Have a nice day. 

Chase Clymer  

You too.