Earn Customers and Keep Them: Maximizing LTV with Partnership Marketing
Business leaders have long valued volume when it comes to their affiliate partners. This approach has also been favored by affiliate partners, as generating more sales or leads typically leads to higher commissions.
However, for companies that leverage partnership marketing, especially those that deal in subscriptions, there has also been a strong focus on maximizing the average customer lifetime value (LTV).
The longer a consumer stays loyal to a specific company, the more that account is worth to both the brand and its affiliate. While this approach is not new, it’s worth exploring in more detail to better understand the connection between partnership marketing and LTV.
Why lifetime value matters to all brands
Lifetime value is an essential metric for all brands, not just subscription-based ones, because it provides insight into the long-term value of a customer relationship. LTV helps businesses determine the profitability of each customer and assess the effectiveness of their marketing and customer retention efforts.
By calculating LTV, businesses can set customer acquisition cost (CAC) thresholds and determine reasonable commission rates for affiliate partnerships. Brands can also identify return on ad spend (ROAS) targets, which are important for evaluating the efficacy of their advertising campaigns.
Furthermore, LTV can help businesses prioritize customer retention efforts. If a customer has a high LTV, it may be worth investing in retention strategies to keep them engaged with the brand over the long term. In contrast, if a customer has a low LTV, it may not be cost-effective to invest heavily in retention efforts.
Regardless of the type of business, understanding and maximizing LTV is critical to driving long-term revenue growth and profitability.
How to calculate LTV
Understanding and monitoring the LTV of customers can have a significant impact on the success and profitability of brands, particularly those in the subscription space. It’s a critical metric that requires a strategic approach.
Here are three ways brands can set about calculating their LTV:
1. Set CAC thresholds
Like LTV, customer acquisition cost (CAC) is another important metric for affiliate marketers to consider, as it has a significant impact of the effectiveness and efficiency of affiliate partnerships. It’s crucial brands give due attention to these interconnected metrics to ensure the success of their affiliate marketing strategies.
When an organization knows what the average customer lifetime value is, it can develop target CAC thresholds to maximize profitability. For instance, imagine that a subscription service provider sells a box of trial supplements for $25 per month, and the average LTV is six months. During the customer’s lifetime, they’ll have paid $150.
Determining customer lifetime value will help the organization decide how much it can afford to invest in CAC. Tracking CAC and LTV will also enable the brand to pinpoint which channels deliver a good return and which mediums aren’t a good investment.
2. Determine reasonable commission rates
Sticking with the example above, let’s say that the affiliate partner receives a $5 commission for the first month and $2 each subsequent month. Are these rates sustainable and fair? Without tracking LTV and CAC, the brand has no good way of making that call.
If the brand pays out too much in commission, it will be difficult to scale the program, much less grow the business. If the commission rates are too low, on the other hand, they’ll have difficulty obtaining and retaining quality partners.
3. Identify ROAS targets
Most importantly, tracking customer lifetime value will enable brands to set return on ad spend (ROAS) targets. A strong ROAS is a telltale sign that marketers are putting every advertising dollar to good use. By contrast, a lackluster rate of return is a reliable sign that customers aren’t sticking around long enough.
LTV, and by connection, ROAS, are great indicators of business health. All types of companies can benefit from tracking LTV and ROAS when it comes to retaining customers, but LTV is particularly important to brands in the subscription space if they’re trying to rack up recurring subscription fees.
Calculating LTV can be a tedious and labor-intensive process, but it’s worth the effort. To calculate LTV, businesses should subtract the cost of acquiring a customer from the total revenue generated by that customer over the course of their relationship with the company.
Maximizing LTV through partnership marketing
Maximizing customer lifetime value is crucial for businesses across industries, whether they operate in retail or recurring subscriptions. However, monitoring LTV has historically been a challenging task that requires a lot of effort and know-how.
Fortunately, advancements in tracking technology have made it easier for brands to monitor LTV across all their marketing channels. While brands engaging in partnership marketing still aim to achieve volume from their affiliates, they also prioritize quality and longevity. With modern tracking tools, businesses can identify which partners are providing long-term value.
Partnering with the right affiliates and an experienced agency partner can help businesses increase their customer LTV and achieve their marketing goals.
How AP boosted LTV for a B2B service provider
Acceleration Partners (AP) has helped numerous clients build or revitalize their affiliate programs while bolstering customer lifetime value. In a successful partnership with a B2B service provider, AP was tasked with setting up an affiliate program and driving new customers with strong LTV. Through expert affiliate management and tracking tools, AP exceeded the client’s expectations.
During the three-month program, the monthly product purchase rate at sign-up averaged 8.5%, surpassing the client’s target threshold by 6.25%. Additionally, the client achieved a three-month active seller rate of 40%, far exceeding its goal of 25%.
These impressive results showcase the benefits of working with a partnership marketing agency like AP, combined with great affiliates, to maximize customer LTV through affiliate programs.
If you want to elevate your partnership marketing program and achieve a measurable increase in lifetime value, get in touch with Acceleration Partners today!
Author: Acceleration Partners