Customer Value Optimization Explained

Customer Value Optimization (CVO) is a unique marketing approach, enabling you to maximize the profit you get from a single customer, instead of hunting down as many prospects as possible. With the help of CVO, you can lower your acquisition cost, which happen to be the largest budget drain in marketing.

In this article, we will explain what is CVO, elaborate on its competitive edge, and deliver an algorithm how to implement it. If you feel tired of your leads growing cold — read on to learn how to melt the hearts of even the coldest prospects. Without further ado, let’s do it!

Why customer’s preferences are paramount

Acquiring a customer is 5–7 times more expensive than retaining one. Studies show that increasing customer retention by just 5% increases profits by 25–95%. Retaining, however, is not always possible — the business might have just started and the database of clients is small, customer preferences shift, the products evolve with times, etc.

Customer acquisition and retention are all the costs business incurs. Even wages and salaries are paid to the workers and employees to either acquire or retain the customers.

As for the profit part, according to P. Drucker:

Inside an organization, there are only cost centers. The only profit center is a customer whose check has not bounced.

As a result, your profit is a matter of either decreasing your costs (which has its limits) or improving the quantity and quality of the checks.

Via: Klaviyo

There are three ways to improve the quality of your checks:

1. To increase the number of clients — acquisition
2. To improve the average check of a client — acquisition/retention
3. To encourage a single client to make purchases more often — retention

Transformed into a formula, these points will look the following way:

• Customers * Customer Lifetime Value / Customer Acquisition Cost = Profit

• CLV = Customer Revenue – (CAC + Cost of Serving the Customer)

With the help of this formula, you can shift your focus from simply generating more traffic to retaining the already obtained customers. Simply put, it lowers the acquisition costs, which tend to be the largest in the cost structure — this is what they call Customer Value Optimization.

Customer Value Optimization

Via: Digital Marketer

Customer Value Optimization (CVO), as the name suggests, focuses on squeezing out most of the value from a single customer. The whole value optimization boils down to 7 stages:

1. Finding the market or fitting niche
2. Targeting the most efficient traffic source
3. Offering a lead magnet
4. Offering a tripwire
5. Introducing a core product
6. Offering a profit maximizer
7. Creating a return path

Most of the marketers jump to the 5th point from the start and end up hard selling to the cold leads. Treat it as a dating process — your partner will most likely object to kissing on a first date, and so does the lead.

Finding your market

Remember, people don’t care about products or services, they want their problems to be solved, which is all about transforming the state of “before” into “after”. New business fails in two ways:

• To offer a desired “after” state (poor offer)
• To highlight the transition (poor marketing)

Which is why you need to know the outcome you want to achieve. Ask yourself 5 questions and write the answers in the table below (we will use it in relation to ZorbasMedia):

• Have: what do your prospects have before and after?
• Feel: how do your prospects feel before and after?
• Average day: what is the average day of your client before and after?
• Status: what is the status of your customer before and after?
• From bad to good: what do your prospects suffer from in the “before” section, and what is the remedy in the “after” section

Don’t forget to specify your main customers and the products you offer. To make things easier, consider relying on the business model by A. Osterwalder.

Have — is the only focus of the majority of the marketers. If you want to be a success, go beyond that and include the other 4 points too. This way, your unique trade proposition emerges itself, e.g., stop working 24/7 over things you don’t understand — read ZorbasMedia and maintain your work-life balance. The longer the distance between “before” and “after” — the more you can charge the customer for the product. And there are two ways to increase that distance:

• Improving the offer
• Highlighting the transition between “before” and “after”

Make sure you put every customer segment you have through this framework, since different customer profiles have different pain points. Segment your whole customer pool by assessing the following criteria:

• Recency — when was the last activity of the customer?
• Frequency — how often the engagement is observed?
• Monetary value — what is the average cash spent of the customer?

Targeting the traffic sources

Based on the most beneficial customer profile you have, figure out the most promising traffic source and specialize. This source will serve as the foundation for your future expansion. Traffic sources can be numerous:

• Emails
• Social networks
• Display traffic
• Content marketing
• Influence marketing
• Search Engine Optimization
• Pre-rolls, mid-rolls, post-rolls
• Tons of them!

Also, if you truly follow the CVO logic, don’t expect to earn a lot from the traffic volumes. The CVO system revolves primarily around cross-sales and up-sales. In fact, proper application of CVO allows paying for traffic on thinnest margins.

Offering a lead magnet

This is where even the cold leads melt and become hot ones. A lead magnet is a portion of value you give to your customer in exchange for their personal info. A good lead magnet offers high value, which is achieved via specificity. There has to be a very exact offer on the table, e.g., get your free trial (antiviruses) or enjoy your 20% discount (eCommerce).

• Your lead magnet is to solve a very specific problem of a customer (or abuse their sinful desires by appealing to 7 cardinal sins, e.g., avarice)

Offering a tripwire

It’s about time to turn leads into customers. A tripwire is a highly lucrative, low-cost offer, used for getting the user hooked up. Professionals sell a tripwire product even at a loss, because they are confident that this investment will be returned with the help of:

• Core product
• Profit maximizer
• Return path

The main goal of tripwire in marketing is to convert the lead into a customer, even if it’s just $1 — once it is done, there is no going back. The customers are easily swayed with a bargain.

Introducing a core product

Remember us telling in the beginning that a common mistake is to try to sell the core product to cold leads? The main problem of such approach is that there is simply not enough trust between a customer and your brand for the former to pay a lot of money.

However, following the 4 steps above turn even the cold leads into… actual customers, with pleasant memories of interacting with you! Now is the right time to introduce your core offer. Funnily enough, the giants, like Amazon, reinvest the money obtained at this stage into the following steps — they make most of the income through up-sales.

Offering a profit maximizer

This is where you raise the average sum of a client’s check. Do you know that McDonald’s makes its profit on french fries and soda, instead of the burgers themselves? Basically, all the notifications like “people also bought with this item” serve as an up-sell. The majority of the costs are incurred at the tripwire stage, i.e., turning a lead into a customer.

Via: Klaviyo

Profit maximizer, on the other hand, is any product that goes on top of the core product and the customer is well-prepared for it. But there is also a stage to make the cycle almost indefinite…

Creating a return path

We’ve generated more customers, have increased their average paycheck, now is the time to improve the frequency of their subsequent visits. Thanks to the lead magnet, you have a permission for follow-up marketing campaigns: new magnets, tripwires, core offers, and profit maximizers. Customer return can be assured via:

• Email newsletters
• Loyalty programs
• Content marketing
• Social media
• Exit offers
• Many other ways

Conclusion

While Customer Value Optimization is focused on maximizing the potential value of a single customer, it is also an all-encompassing strategy. By carefully following all its stages, you can establish mutual trust with the customer, before winning back your initial investments and start profiting.

Basically, instead of trying to get a profit immediately, you follow the strategy of the casino, and let the visitor win first to get them hooked. Once you have them, you can sell a lot, without worrying about the acquisition — one of the largest contributor to the total costs. Even if some prospects can see through your strategy and get off your hook, the majority will be too temped to resist.