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An Introduction to Predictive Lifetime Value

Written by: Cheryl Morris, VP Marketing

When Nanigans was founded in 2010, it was with the understanding that performance marketing was broken from start to finish. Marketing campaigns that focused on proxy metrics like CPC, CTR, CPM, CPA…etc. all too often ignored true value, and that still seems to be the case today.

Let’s not kid ourselves, it’s easier to find “successes” and “wins” by examining everything except ROI and often times it takes additional time, creative thinking and resources to make a campaign ROI positive. Optimizing based on advertiser defined ROI, however, is the only way performance marketing campaigns soar to million dollar monthly budgets and profits for advertisers.

So then the takeaway here is, focus on ROI and everything will be fine, right? But then one begins to wonder, why don’t marketers spend more?

It was with that very question, that Predictive Lifetime Value™ was born.

1.) What is Predictive Lifetime Value?

It’s the crossroads where media buying meets customer lifetime value, and allows advertisers to bid in real-time on the monetization opportunity of customer worth over time.

2.) How does Predictive Lifetime Value work?

Predictive Lifetime Value applies the concept that customers are worth more than their “action” today or present day value to media buying. Whether it be a purchase event or specific conversion, the ratio of customer acquisition cost vs. customer worth or value changes over time. Hence, marketers should be focused on investing in customers who will be the most profitable over time.

3.) How is Predictive Lifetime Value tactically applied?

There are 5 core functions of Predictive Lifetime Value which include:

  • Maturity curves: Using early ROI trend models (based on historical performance) to identify the best customers.
  • Affinity modeling: Finding more customers that look like your best customers.
  •  Cohort analysis: Using automation to apply historical performance to present and future campaigns.
  • Value definition: Client defined notion of value based on real-time and any downstream conversion event or revenue stream KPI.
  • Flexible optimization framework: What?

4.) What is a flexible optimization framework?

A flexible optimization framework simply means that you as the advertiser can decide what you’d like to optimize towards, and then implement unique algorithms specifically for you, your brand and your end goal. If you have multiple goals, then applying portfolio-based algorithms ensure you can execute campaigns against each one in tandem.

A few examples include:

  • Marketers should determine what their overall goal is whether it be maximizing revenue, managing to a specific cost per conversion or audience reach and volume.
  • Inserting automated constraints and optimization rules for budgeting, ROI, yield or additional KPI based on statistical modeling.
  • No more Excel! Pivot tables tied to revenue should be built within your software so you can manage all from one place!

lifetime ROI5.) The last question you may be wondering is whether or not Predictive Lifetime Value actually works; so does it?

A recent e-commerce case study shown below illuminated that optimizing around Predictive Lifetime Value as opposed to CPA returns a 6x increase in ROI.

To learn more about Predictive Lifetime Value and all things performance marketing across social and mobile, contact us today!

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