Lifecycle

One of the most often cited pieces of retention marketing advice for profitable growth is to focus on your best customers.

The math associated with the advice is simple: 20% of your customer base deliver an outsized amount of revenue—80% if you subscribe to the Pareto Law; usually less if you subscribe to the Ehrenberg-Bass Institute for Marketing Science’s research. Regardless, the math is still favorable. A small portion of your customer base makes up a large portion of your revenue.

Focus there, and you can create outsized returns.

There is a problem with this, though: For as simple as it is in theory, it’s incredibly complicated—if not impossible—in practice.

And the reason is for all the pieces that get left out of the advice.

When someone says “focus on your best customers,” what time period should you use to define that? Given that your heaviest buyers end up becoming less heavy buyers over time, should you take that into account? If you did take that into account, would you want to focus on “yesterday’s best customers,” so that you could maybe keep them as a best customer for just a little bit longer? Or would you want to focus on “tomorrow’s best customers,” so that you could try to get ahead of the problem of them spending less with you?

It might be true that a small portion of your customer base constantly delivers a larger portion of your revenue. But it is also true that that portion is constantly changing. And that makes following simple, well-meaning advice like “focus on your best customers” a very difficult thing to do.

It also makes it dangerous: If you go back to the questions above, and you focus on “yesterday’s best customers,” then you’re likely spending time on something that’s already well into diminishing returns; if you focus on “tomorrow’s best customers” … well, how do you spot them?

(Note: RFM is often trotted out as a solution to this, but these are point-in-time snapshots that only further illustrate the dynamic—borderline chaotic—nature of customer behavior.)

One of the reasons for this, I think, is the way we measure the value our best customers generate. We call it lifetime value, but this is a misnomer. And that misnomer, probably, at least in some ways, leads to the well-meaning, but dangerous advice. Because “lifetime” suggests that we have some sort of control over the customer for the remainder of their life.

A more appropriate term might be lifecycle value, which would switch the control from the brand to the customer, and put the onus on the brand to find reasons to extend a customer’s lifecycle. That, often, isn’t just a retention marketing responsibility. That’s a brand and product responsibility, too.

Next time you’re talking about lifetime value or best customers, maybe reframe that conversation to the “lifecycle,” instead. It makes giving (or receiving) advice a little more complicated, but a little more truthful, too.