The most com­mon ques­tion I am asked by ana­lysts on exist­ing or new engage­ments is “What is the most impor­tant thing we are miss­ing?” Invari­ably, I pause and start an earnest men­tal review of their cur­rent dataset archi­tec­ture, data col­lec­tion tools, and their per­son­nel, then weigh them against the stated busi­ness objec­tives of the engage­ment.  In order to pre­vent offend­ing the client or friend, who often are one and the same, I usu­ally pose the ques­tion of “What is the aver­age value of a cus­tomer for the business?”

BICK-BAM-BOOM-CLANK-AYOOGA…. (Insert any other sounds of a machine com­ing to a grind­ing halt)

Most clients can­not answer this ques­tion…. initially!

With remark­able pre­ci­sion, mar­ket­ing depart­ments can state the costs for acqui­si­tion per cus­tomer dur­ing any given period. Most can actu­ally go a step or two beyond this and tell you within cus­tomer seg­ments or by medium or mar­ket­ing vehi­cle exactly what the cost per acqui­si­tion is and was his­tor­i­cally. In fact, mar­ket­ing bud­gets and what trans­lates to acqui­si­tion spend/ad spend are often deter­mined based on these amaz­ingly pre­cise fig­ures which are seen as THE KPI’s.

Work­ing in Finan­cial Ser­vices, I have come to believe that if you are set­ting value based on CPA and SPEND alone, you are miss­ing the boat.

Exam­ple: Friendly­BankUSA CMO Peter Pump­kineater walks into Sally Creamcheese’s office Mon­day morn­ing and with author­ity states “Sally, I want you and your team to increase credit card appli­ca­tions by 30% in the first quar­ter of the com­ing year, NO EXCUSES”. Sally Cream­cheese imme­di­ately calls a meet­ing with all of the mar­ket­ing ana­lysts, deter­mines the chan­nels which are dri­ving the largest vol­umes of appli­ca­tions by the asso­ci­ated CPA, and pri­or­i­tizes them based on which is most scal­able. Sally then sets the plan in motion to pur­chase more adver­tis­ing which will net the desired 30% increase credit card applications.

Fast-Forward: Q1 of the fol­low­ing year ends and Peter Pump­kineater has reviewed the num­bers mul­ti­ple times.  He sees the 30% increase in credit card appli­ca­tions, but only a net gain of 2% in new credit card accounts. What’s worse, he sees that the mar­ket­ing to increase the appli­ca­tions has cost him 20% more than the same quar­ter the pre­vi­ous year and he only has a 2% net increase in cus­tomers gained to account for the spend.

Friendly­BankUSA is not alone in this sce­nario. With­out under­stand­ing the value, or Cus­tomer Pro­jected Rev­enue, of the cus­tomer seg­ments being acquired, mar­keters are exposed to the risks asso­ci­ated with treat­ing all cus­tomers equally. In Finan­cial Ser­vices, there are vast dif­fer­ences in cus­tomers with high credit scores and low debt and cus­tomers with ter­ri­ble credit scores who are lever­aged up to their eyeballs.

The most impor­tant metric(s) that Finan­cial Ser­vices clients invari­ably are miss­ing is “Cus­tomer Pro­jected Value”. Cre­at­ing cus­tomer value met­rics is the only way to secure the miss­ing por­tion of the equation.

Key Equa­tion: Cus­tomer Pro­jected Rev­enue — Cost Per Acqui­si­tion = Net Pro­jected Revenue

Pro­jected value met­rics come in all shapes and sizes but the hard truth is that with­out being able to under­stand the value of acqui­si­tion from a rev­enue per­spec­tive, you are buy­ing cus­tomers sim­ply by vol­ume and frequency.

Deter­min­ing mar­ket­ing spend on the DELTA which exists between CPA and CPR enables mar­keters to under­stand where spend­ing more per Acqui­si­tion is pru­dent as well as quickly iden­ti­fy­ing where they are over­pay­ing for the cus­tomer type/segment being acquired. This abil­ity moves adver­tis­ing sales from a supply-driven pric­ing struc­ture to a demand-driven mar­ket approach. Hav­ing the abil­ity to tell your AD Net­work, Search Provider, or Email Mar­keter, the exact price you are will­ing to pay turns the tables in the Marketer’s favor. Empow­er­ing mar­keters to know exactly where those hid­den break-even lev­els are, and more impor­tantly which seg­ments pos­sess the most exploitable mar­gins is the respon­si­bil­ity of good analysis.

Finan­cial Ser­vices com­pa­nies value cus­tomers in very dif­fer­ent ways, but usu­ally those deter­mi­na­tions are based on Aver­age Account Bal­ance, Credit Wor­thi­ness, or Trade His­tory. Treat­ing cus­tomers as you would any secu­rity or invest­ment, which seeks to acquire the most valu­able cus­tomers for the low­est mar­ket costs, will increase the DELTA, which trans­lates to increases in profit mar­gin on an indi­vid­ual cus­tomer and the larger cus­tomer type. The hid­den bonus in acquir­ing a higher value cus­tomer pop­u­la­tion is the com­pany is reduc­ing its debt and risk expo­sure. Secure and valu­able secu­ri­ties are the same as secure and valu­able cus­tomers; they are the cur­rency upon which the entire finan­cial indus­try is built.

Deter­min­ing the Pro­jected Value met­rics your com­pany needs will be based on your indi­vid­ual busi­ness objec­tives and should be exe­cuted on a per-campaign basis. There are mul­ti­ple ways to deter­mine pro­jected rev­enue met­rics, and we at Adobe Con­sult­ing would be happy to help you find the solu­tion that fits you and your com­pany best.

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