How To: Measure and Impact LTV for Subscription Brands
In her latest interview for our How To series, our Head of Client Experience, Lucy Botham, spoke to Senior Affiliate Marketing Manager, Hope Walker. They discuss how subscription brands specifically can measure and improve lifetime value, and offer three key takeaways brands can action for their own subscription marketing programs.
- Ensure your measurement of LTV provides insights and relevant data
- Test and learn offer mechanics to inform your LTV strategy
- Ensure you’re encouraging customer loyalty by engaging upper funnel activity
Hope, can you tell us a little bit more about yourself?
Yes, hello, I’m a senior manager on Silverbean’s affiliate team. I’ve been here for two and a half years now, and over the course of those two years I’ve worked with a lot of subscription brands and helped my knowledge as I’ve gone in terms of how best to manage your subscription programs specifically. Some examples of those brands are HelloFresh, Dash Water, Pact Coffee, Wild Deodorant, just to name a few.
Thank you. So we’re making this video off the back of our other colleague, Nic Yates’, article around how subscription model is the key to growth marketing. I feel like this has come about as subscription brands are massively on the rise anyway, and they’re finding it easy to adopt growth marketing, because they can be quite flexible and rapid with tactics. Would you agree with that, Hope?
Yeah, definitely, I think what we’re going to touch on in this video is lifetime value, which is a crucial metric for subscription brands, and allows that kind of flexibility and investment. Because you can front end your costs for acquiring customers and make that money back later, and keep those customers for a longer period of time.
We’re seeing not just subscription brands adopt these models, but also traditional brands are trying to get into the subscription space. As Hope mentioned, we are specifically talking about lifetime value. So before we go any further, let’s just quickly remind ourselves what lifetime value is. Hope, do you want to explain what lifetime value is to the audience?
So it’s essentially the value you earn from a customer across their lifetime as a customer of your brand. It’s one of the most crucial metrics in their subscription space. Subscription brands often front end the costs for acquiring customers and inject a lot of money at the acquisition stage, and then make their profits down the line by keeping those customers on board for a longer period of time. So, ensuring you’re measuring the value that you get from a customer over the lifetime of the brand is key to understanding how profitable your business is. Lifetime value is that metric that you use to measure that specific element of profitability for a brand.
Now, you’ve mentioned measuring, and this is a how to video – I’d like for us to share your knowledge on how you go about measuring lifetime value!
Yes, obviously a crucial KPI needs to be accurately measured. On a basic level, you just need a way of differentiating and identifying a specific customer. And then you need a method of identifying how much income you’re gaining from that unique customer over the course of their time being a customer with the brand.
That in and of itself though is quite a cumbersome task, to measure the lifetime value of every individual customer. So what brands usually do and what we recommend is that you use a methodology to get a more top-line view of your average lifetime value. And measure that in a way that allows you to determine how lifetime value varies depending on different variables of your strategy and your program.
One of the most common, key and flexible ways of doing that is through measurement of lifetime value off the back of voucher codes. You can then determine kind of the lifetime value of any customer account associated with the redemption of a particular code. And that code is associated with a particular account ID and then you can aggregate the view of how much money you’re gaining from accounts with that one code. That then gives you an overall view of what lifetime value is.
But the use of the voucher code element of measuring lifetime value gives you that flexibility, because you can change up the use of those voucher codes depending on how you want to measure lifetime value. For example, you can determine which particular performance channels are driving the best levels of lifetime value by allocating uniquely identifying codes per channel. Then you’ve got a view per channel of which channel is technically the most profitable based on lifetime value metric.
You also have the flexibility of allocating specific voucher codes to specific partners that you’re working with, and then that allows you to measure the lifetime value driven from particular partners that you have on board as well. That allows you to make decisions on which partners you want to optimise with and work with more, because they’re driving more valuable customers from your side.
I think most crucially, with the voucher code methods, it allows you to determine the lifetime value of the promotions that you’re putting into their space. So, a particular code obviously is associated with a particular offer. And if you’re measuring the lifetime value of the code, you’re measuring the lifetime value of the offer that you bring to customers as well. That means you can be a lot more flexible in your offer strategy within the program.
So if you’re running a program, say HelloFresh, then this lifetime value data is checked and looked at all the time, and then you can flex your offers, you can flex which channels you’re putting money into, depending on what promotion you’re running?
Yes, exactly that.
Cool. Okay, so moving forward – now we can measure it. How do we go about proving it? You and I have had conversations about offer mechanic tactics, can you tell us a little bit more about that, in relation to lifetime value?
Yeah, so with the voucher code method, once you’re kind of measuring that lifetime value on an offer by offer basis, you’ve then got the data there to inform you of exactly which promotion is resulting in the best lifetime value.
You can change up specific aspects of the mechanics within the offers that you’re pushing through the channel. By executing different codes per different mechanic change, you can then measure the impact. You’ll see whether lifetime value changes or not based on that particular mechanic change within your offer. If a brand is consistently pushing, for example 40% off two months of subscription, and within the space it’s just a standard offer, there’s an opportunity to then test how lifetime value changes by tweaking your standard offer slightly and maximising the amount of time that that offer is available to a customer.
So you might say, okay, we’ll reduce that to 30%, but extend the amount of time that a customer gets that offer – not just two months, but four months instead, and then that keeps you profitable. You’re reducing the discount slightly, but then you’re keeping that customer on board more likely for four months, at least, instead of that two months, if it’s a customer that’s driven by that discount mentality.
And then the hope is that you get them on performance, they’re more likely to be more loyal, and then they’ll keep coming back? Brands need to determine how long a customer stays with them before they become loyal, and don’t drift off to another brand. That’s gold, and that’s the key.
I think there’s a lot of tying in to the fact that if you stay with a brand for X amount of time, its then just part of your routine. There’s a psychology theory, saying it takes six weeks to form a habit. So perhaps, if you keep a customer with the brand for six weeks at least, and your product is integrated within their life for that period of time, then they develop that habit and they’re more likely to stay. It’s all about tapping into that kind of customer loyalty and embedding your brand in their life for a longer period of time. To keep them driving money for your brand, essentially.
Yeah, absolutely. So with offer mechanics, then I guess what you’re trying to do is balance up acquisition and sort of period of time. Is that right?
Yeah, well, you can’t get away from the fact that affiliate marketing performance channels in general, they’re held to account by acquisition volumes and bringing new customers into the brand. So the challenge then becomes for the channel, how do you balance that acquisition volume versus lifetime value? You can do that through tweaking these offer mechanics as well. You can keep that hook for customers who have that strong discount mentality by offering a really competitive discount, for example, for the first month of subscription to hook them in, and then severely decreasing that discount. Then you can extend the amount of time that that smaller discount applies for, so you can live in for a longer period of time. So you might offer a really competitive 50% off your first month, and then drop that down to 10% for the next five months, or even stagger that reduction in discount to 50% your first month, 20% in the next two to 10% for your next three, for example.
Then it keeps that hook for acquisition in terms of, “oh, that’s a really strong discount. I’ll get that for the first month.” But then you’re offering a discount for a longer period of time beyond that, to try and keep them there once they’re signed up.
And as a bit of a tricky question, we are obviously in the age of discounts, and the world that we work in is very discount heavy. But what of your brand that doesn’t discount? We have a lot of premium brands that come to us and say “we don’t want to discount.” What would you say to them?
Customers in that discount mentality are often at that stage of the customer journey where they’re just at the purchase stage, they’re just looking for a discount. They’ve already kind of committed to purchasing, they just want the cheapest option possible.
The way that lifetime value is tied to the customer journey is it’s just a methodology for measuring customer loyalty. You can really boost lifetime value and customer loyalty by targeting the upper funnel elements of the customer purchase journey. So instead of targeting that discount mentality at the point of purchase, you can instead target the motive development stage of the customer journey. You could engage with content publishers, for example, and educate your audiences and customers about the USPs of your brand, building that kind of brand image in their head ahead of the stage of purchase so that you’re instilling your brand USP is ahead of the purchase stage.
I’ve got a little slide here of the customer journey. So what we’re talking about here is making sure you’re being as active as possible at this left hand side, which is relevant research evaluation before we get to the purchase side.
That’s where you can escape being really discount-heavy, because you’re playing a role in the customer’s motivation, and engaging with them with less discount offers and more content style promotions. Therefore you’re increasing the likelihood of loyalty because you’ve been on a longer journey with that customer.
Yes. In terms of the research and evaluation stage, there’s also opportunities to hit that element of the mix without kind of executing a strong discount strategy. You can engage with comparison and review partners, which are then there to kind of benchmark your product and your brand against your competitors. And benchmark your USP as what makes your brand the best in comparison to your competitors in the space.
Then from a customer perspective, they can see that before purchase that you’re the best in the space. So off the back of that they’re more likely to stay loyal to you once they have committed to that purchase because they already have that awareness that you’re the best offering. That increases that lifetime value at the evaluation stage, instead of having that manipulation of the discount element of your strategy as well.
I think it’s crucial. I’ve done the journey of trialling out different meal boxes, my husband loves a discount, and he’ll try and hunt them down all the time. I’m quite lazy as a consumer, so if I find something I like, I like to stick with it. So he did the rounds, did the discounts, but I was much more into the aesthetics, the experience of the brand.
So he’s then pushing it. And I’m so determined to like these meal boxes that I’d rather avoid the discount, because I really enjoy the experience. And so it’s important that you’re doing these discounts to hit those people. But I think the brand has to consider the experience that they’re offering to make sure you get that loyalty and then not just lifetime value, but customer lifetime value, you see that for a long time.
Yeah, like you say there’s, there’s always two types of people: really low discount, and ones that just really enjoy a particular experience. I think making sure you’re hitting both and casting the net as wide as possible is key.
Anything else on mechanics or customer journey that you want to flag up?
In terms of kind of testing out offer mechanics, I’d say it’s crucial to do that with particular partners that you’re going to see the best results from. If you’re measuring lifetime value on a partner by partner basis, and you can see from the standard offer that you have for a channel, everyone’s on the same basis in terms of the offer. But if you’re seeing a particular type of partner, and driving a really low lifetime value for that specific standard offer, then there’s an opportunity there to test your offer mechanic changes with that low performing partner.
Then, you really get a sense of if that particular offer mechanic changed, and is having an impact on lifetime value. If that change for that low performing partner increases in a kind of significant way, then you’re getting an idea of if that kind of discount strategy is working to drive up that lifetime value. It’s usually for partners that have an audience set that is that discount-driven. For example, student sites can often drive that lower lifetime value from standard discount offering, because students really love a discount.
So there’s some methodologies we’ve trialled in terms of trying to increase that length of the discount for students so that they feel like they’re getting an offering, something cheaper over a longer period of time. Then that mentality and discount mentality is maintained. But obviously, they’re getting it over a long period of time. So that lifetime value has seen a huge increase off the back of just changing the mechanics with that particular cohort of customers.
Okay, that’s all we got time for. So, Hope, do you want to just end on the three key takeaways around measuring and improving lifetime value?
Yeah, I think the core starting point is just making sure you’re measuring lifetime value in a way that provides those insights and that ability to make those data driven decisions. So like we mentioned, setting up voucher codes that are allocated specifically to different partners, and different channels, so that you’re getting that lifetime view. And you’ll be able to make decisions off the back of that in terms of which partners you optimise with, and which offers that you push to particular partners within the mix as well.
Second, test and learn offer mechanics. So we’ve spoken a lot about different methods of changing your offer. And key here is to test and learn those different offers and how they impact the lifetime value stats that you’re seeing. So A/B testing for a particular period, for example with a student site, your standard offer, plus an offer that is looking to boost lifetime value by extending that offer period. So just make sure you’re testing as much as possible and getting the data off the back of that, and then implement your strategy off the back of that data that you receive.
Last one is then as we’ve spoken about ensuring that you’re engaging across the upper funnel stage of the customer purchase journey, within the marketing that you’re doing within channel. It’s a lot easier to encourage customer loyalty at the higher end of the funnel, because you’re hitting them at the motive development stage in the stage where they’re researching and benchmarking your brand against others. So they’re more likely to become more loyal customers, if you’re engaging them in that way, as opposed to through lower funnel discount activity.
Thanks, Hope, that’s a really nice summary. So if you’re watching and you work in a subscription brand, and you’re struggling with that balance of acquisition and lifetime value, and you want more information, do get in touch. No obligations, but we’re happy to give advice.
Or if you were working in a brand that’s not subscription, but they’ve started dabbling in that mentality, then again, hope this information has been useful for you. Thanks to Hope, and we’ll catch you next time in the next episode of How To.