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Understand LTV (Lifetime Value) for Advertising


As a business you don’t want to just sprint through sessions enjoying limited, short-term profits. You want to endure and thrive, promoting a sustainable business model with regular, reliable (and predictable) profits. Your business needs to have a predictable cash flow to cover your overhead, deliver a steady profit margin, and (perhaps most importantly) give you peace of mind. The prevailing strategy for achieving this type of security for your business is called the Lifetime Value Model or LTV. And now Facebook has engineered its business platform so that LTV can be implemented conveniently in all your advertising campaigns.

There will always be customers who come and go, and who’s behavior is erratic and unpredictable. So too there will always be customers who are loyal and consistent, making regular and predictable purchases from your brand. The challenge is assigning marketing dollars to these audiences and knowing how to segment them using data. Then properly inputting this data into Facebook to communicate the right message to these audiences at the right time.

How can you predict the behaviors of your customers or rein in loyal customers for consistent purchases? With the Facebook Pixel and LTV, predicting this type of buyer behavior is easier than ever.

What is LTV?

LTV is the overall revenue a business generates from a user throughout their time engaged with your business. Depending on your business, this might mean a month, a year, or twenty or more years.

When businesses predict the LTV of a particular customer, they can better assign a customer acquisition rate for that customer. For example, if you predict a customer will spend $10 over one year at your business, would you spend $100 on advertising and marketing to acquire that customer? I doubt it. You’d be losing $90. However, spending $100 on advertising to acquire a customer who will spend $5000 over their lifetime is obviously a wise decision.

But how can you predict how much a particular customer might spend if they have never purchased anything from your business previously? How can you target your advertising to customers who are more likely to have a higher LTV?

You can do this using the Facebook Pixel and Custom Audiences.

Once you have installed the Facebook Pixel on your website, the pixel tracks user interactions and purchases made. You can then segment that data to determine which customers are spending the most and the frequency of their spending habits. Once that data is segmented from the rest of your customers, and you have a list of your most loyal and profitable customers, you share that data with Facebook to create a custom audience.

This audience of loyal customers is your foundation and your base. You can then create special offers and advertisements to appeal specifically to this audience. But better yet, you can create a lookalike audience on Facebook to attract users with the same spending habits. It’s like throwing a net in the water to catch fish. Would you rather take your boat out randomly into the water and throw the net OR would you rather study their habits and patterns and throw your net in the EXACT spot your fish are swimming at that time? The answer is pretty obvious. No one wants to waste their time throwing their net into empty waters.

Start analyzing your customers’ LTV today and build an advertising strategy that works. Contact Cote Media for a strategy session. We can design an LTV campaign for you that builds a sustainable business model.

 


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