How to Calculate and Increase Customer Lifetime Value for Media Companies

A big part of running a successful media company is knowing how to extract the most value from your customers. For newcomers, this primarily entails figuring out which monetization method to apply. But, for the more established companies, this means outlining long-term strategies and goals. One of the most important metrics for making this type of decision is customer lifetime value or CLV. So, for this article, we will take a more in-depth look and make it clearer for you how you should improve it.

Understanding the basics

Customer Lifetime Value (CLV) represents the total revenue a customer is expected to generate over their entire relationship with the company. Whether you are relying on ad revenue, subscription revenue, or some other form of monetization, CLV always stands for the total sum of money earned from a customer. What is important here is to first differentiate CLV from other metrics that often get confused with it. This includes:
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CAC (Customer Acquisition Cost) - CLV is all about how much you get from a customer, while CAC is how much it will cost you to gain one.

ARPU (Average Revenue Per User) - With ARPU you take a specific time frame (like a month or a year) and calculate how much average revenue you get per user. Meanwhile, CLV is focused on the long-term and how much total revenue you will get from users. RPC (Revenue Per Customer) is fairly similar to ARPU, only that it focuses on a shorter period.

L (Customer Lifetime) - Customer Lifetime outlines how long a customer is likely to stay active.

Different revenue streams

It is by no means uncommon for a media publisher to have multiple revenue streams. If you are wondering which one to get, we've already covered different monetization tactics available to media publishers. The most common ones include:
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• Subscriptions
• Advertising
• E-commerce
• Donations and Crowdfunding
• Data Monetization
• Syndication
• Sponsored Content and Partnerships
• YouTube and Social Media Revenue
• Mobile Apps
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All of these are viable options depending on what type of content you create and who your target audience is.

Calculating CLV

The most basic way to calculate Customer Lifetime Value is to simply multiply the ARPU with Customer Lifetime and deduct Customer Acquisition Cost. Put into math:
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CLV = ( ARPU x L ) - CAC

Average Revenue Per User (ARPU)

Depending on how precise you want to be, calculating ARPU can become quite intricate. But, for the sake of brevity, let's assume that you are simply trying to get a general idea of how much your CLV is. In this case, you will have a fairly similar time deducing what is the ARPU, regardless of the type of monetization. For instance:
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Subscriptions APRU = Total Subscription Revenue \ Total Number of Subscribers

Ad Revenue per User = Total Ad Revenue \ Total Number of Users

E-commerce ARPU = Total E-commerce Revenue \ Total Number of Customers
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And so on for other revenue streams. The idea is to simply get a rough average for a period. To take an example, let's say that your Total Subscription Revenue for a month is $15,000 while you have 750 subscribers. This means that the ARPU is $20.

Customer Lifetime (L)

The next thing to do is to estimate how long a customer, subscriber, or user typically remains active. This can be more difficult to discern as "being active" can mean different things for different monetization models. It might be smart to determine an inactive threshold based on prior experience with a specific monetization tactic.

Another good way to get an estimate of Customer Lifetime is to use the Churn Rate. It represents the number of people who stop being active on your platform during a specific period. Put in math, this looks like:
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Churn Rate = Number of users lost during a period / Total number of users at the start of the period

So, if you've lost 4000 users during a month, and you have 100.000 users total, your churn rate is 4%.

You further use this number to calculate the Customer Lifetime (L) where it

L = 1 / Churn Rate
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So, if your monthly Churn Rate is 4%, your Customer Lifetime will be 1 / 0.04 = 25 months

Customer Acquisition Cost (CAC)

The last thing you need is to determine what the average acquisition cost is for a single customer. This can be a complicated metric in its own right, but again, we are sticking with the basics here. So, to calculate CAC simply sum up all the money you've invested into marketing, sales, and other customer acquisition activities and then divide that number by the total number of customers acquired. This, of course, should be considered within a specific time period (a month or a year). Put into math it should look like this:
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Total Acquisition Costs = Total Marketing Costs + Total Sales Costs + Other Costs

CAC = Total Acquisition Costs / Number of New Customers Acquired

To give an example, let's say that you've spent on marketing $40,000, on sales $20,000 and that your other costs come up to $10,000. Total Acquisition costs would be $40,000 + $20,000 + $10,000 = $70,000.
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Let us also say that during that period you've gathered 1400 new customers. In that instance, the CAC would be $70,000 / 1400 = $50 per customer

Final tally

Now, let us put all the numbers into perspective.
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CLV = (ARPU x L) - CAC

If we use our examples we'll find that:

CLV = ($20 x 25months) - $50

CLV = $450

Boosting CLV

This was the basic rundown of how you can calculate your CLV. Of course, it is possible to have a more precise estimate. But, for that, the metrics for CLV management would have to become significantly more complex. Things like:
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• Different monetization options
• Customer retention
• Estimates for different periods and marketing projects
• Segmenting users into different groups
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All these are important factors that you might want to consider. But, unless you are really concerned about your CLV, you don't really need to go into much debt. Instead, get a general idea of how much your CLV is and then work on improving it. Numerous strategies can help you in this regard.

Customer loyalty

One of the ways to improve your CLV is to love your CAC. Namely, if you have to pay a hefty price for every new customer, it only makes sense to try and retain the old ones. For almost all media companies, customer retention is worth more than customer acquisition. So, why not try one of the available retention strategies?

The simple one is to implement customer loyalty rewards. Namely, if a customer remains active for a prolonged time, they should receive a reward. As long as the value of the reward is less than CAC, you are being profitable. By some estimates, a loyalty program can increase your CLV by as much as 85%.

Personalization in media

Personalization is a critical element of CLV in media as it enables publishers to tailor content to each customer's unique needs. This can mean changing your content topic or style in order to better resonate with your audience. Or it can mean that you send personalized content like emails, in order to show appreciation. The key here is actually learning what your customers are like. Tools such as data management platforms (DMPs) and customer relationship management (CRM) systems can help you collect and analyze customer data. By doing so you can get a decent idea of who you are trying to target and how to best yield revenue from doing so.

Customer experience in publishing

Customers who enjoy positive experiences with media companies are more likely to become loyal and long-term customers, thus boosting their CLV. Unfortunately, customers have grown to expect excellent customer service, regardless of how big your company is. But, fortunately, it has never been easier to establish a decent CRM system. Media companies can provide exceptional customer experience by leveraging technology such as chatbots, automated responses, and self-service portals. By providing prompt and effective customer support, you can improve customer satisfaction and retention. Both of these are pretty much guaranteed to boost your CLV.

Future of CLV in digital media

As digital media continues to evolve, CLV will become even more crucial to media companies' success. With more data and advanced technology, you will be expected to provide more personalized content, screen advertising more effectively, and provide better customer support. Luckily, publishers can already leverage machine learning and AI to develop more accurate and precise predictive models to calculate and increase customer lifetime value. These technologies can enable you to personalize interactions with individual customers and optimize their retention strategies. So, don't shy away from consulting with AI when it comes to calculating CLV.

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