No matter what product or service you sell, understanding your customer is vital. Aside from knowing your customer so that you can properly advertise to them, it’s also essential to understand how each customer impacts your bottom line. You need to understand the overall value they bring to your brand, both short and long term, as well as what kind of ROI you can expect to see from them. To do this, you need to understand Customer Lifetime Value.
While understanding customer lifetime value is important across many different industries, understanding customer value is especially important for brands that work in relationship-based industries such as life insurance.
Brands in the life insurance vertical often operate on a contractual basis and therefore rely on building and maintaining strong relationships with customers over time to both drive new policy applications, and upsell existing customers for additional coverage.
In order to build and maintain the most profitable relationships with the best ROI, advertisers in life insurance marketing can use lifetime value to understand which customers have the best likelihood of renewing policies or adding coverage overtime.
This helps brands understand which customers deliver the most revenue for their business and offer the best long-term ROI. As a result, advertisers in life insurance marketing can determine how much time and resources they should spend on capturing new and retaining current customers.
Marketers in the life insurance vertical can also use lifetime value to determine which prospective customers have a low likelihood of signing up for policies and eliminate any wasted advertising budget trying to get these users to convert (i.e. purchase a policy). Instead, they can use this budget to reach new users with a higher likelihood of converting, retain the most valuable customers, or upsell profitable customers for added coverage on their policy.
Lifetime Value provides advertisers in the life insurance vertical with actionable insights to better inform the distribution of advertising and media budgets. Efficiently using advertising/marketing budgets reduces wasted ad spend while driving better overall ROI from digital advertising campaigns.
Recap: What is Lifetime Value?
Lifetime Value is the Net Present Value (NPV) of the profits a customer generates. It takes into account both profits and costs to create a “net” figure. This provides a complete picture of how valuable a given user is to your brand, and as a result, you can better allocate how much time, money, and resources you should invest.
When it comes to life insurance marketing, understanding customer lifetime value can help drive better ROI from individual customers and audiences since you can use data-driven insights to decide how much to invest in your digital advertising, as well as decide which customers to target, and how to move them through the conversion funnel.
To do this, advertisers in life insurance marketing can apply machine learning algorithms and AI to calculate a customer’s current value and predict their expected future lifetime value. While this requires more in-depth data science and analytics, it is one of the most helpful tools for life insurance marketers who want to move beyond the basic calculation of lifetime value.
1. Lifetime Value helps you understand which users are profitable and which users are not
Lifetime value offers a complete picture of how valuable a given user is to your brand over time, not just when they initially convert. This complete picture allows you to segment users into different groups, including users who are profitable and unprofitable.
Marketers in the life insurance vertical can then create a lifetime value-based segmentation model that not only identifies the most profitable groups of customers but also and gives them specific information about those groups and their shared characteristics (such as demographics).
These insights can be utilized to inform audience targeting in future life insurance marketing campaigns, where advertisers in the life insurance vertical can target users with similar characteristics to proven profitable users.
This also allows for more efficient digital marketing campaigns since advertisers in life insurance marketing can focus budget on audiences with the highest likelihood of conversion. These audiences will also deliver the best ROI.
When you know how valuable a user is to your brand, you can better balance how much you invest in specific targeted advertising campaigns. The more balance there is between how profitable a user is for your brand and how much you spend to acquire them, the more ROI you’ll see from your relationship with that customer.
2. Lifetime Value helps you see which users have the best retention rate
Retaining policyholders is an integral part of any life insurance marketing plan. For the best policyholder ROI, life insurance marketers need to be able to pinpoint and strengthen the relationship with their most loyal customers and identify those who are likely to disengage and develop cost-efficient ways to keep them. This is especially important in life insurance marketing since it can cost ten times more to acquire a new customer compared to retaining an existing one.
Brands in the insurance vertical need to be able to measure customer loyalty in order to design cost-efficient ways to retain customers. Lifetime value can help measure customer loyalty by delivering insights on their purchase frequency.
As a result, marketers can understand which customers are most loyal and therefore have the best retention rates. They can then target marketing efforts to these customers, which have a better ROI compared with new customers that cost a brand significantly more to acquire.
3. Lifetime Value helps you see which customers you should upsell
Once you use lifetime value to identify which customers have the best retention rate, you can determine the most cost-efficient way to keep them; one of the best ways to keep current customers is to upsell them. When it comes to life insurance marketing, this might mean getting them to add coverage to an existing life insurance policy.
Brands in the insurance vertical can also use lifetime value in conjunction with analytics data to gain insights on certain life events users experience. Understanding these life events helps life insurance marketers predict when a user might need to upgrade or adjust their current policy. This creates an opportunity to upsell since customers often purchase or add on to their policies in reaction to or preparation for a life event.
The opportunity to upsell a customer contributes to their lifetime value by creating a continuous cycle where a customer turns to your brand when it comes time to renew or make changes to their policy. This fosters a better relationship with the policyholder and drives the best ROI; repeat customers continue to bring in revenue with less advertising effort than needed to acquire net new policyholders.
4. Lifetime Value helps you see which users are wasting your time
Measuring lifetime value can not only help brands in the insurance vertical know which customers and audience have the most likelihood to convert time and time again. It also helps marketers pinpoint which users will not contribute enough revenue overtime to justify spending media budget aimed at an initial conversion (i.e. sign up for a policy).
Using lifetime value to understand which users are not likely to bring in enough revenue relative to acquisition cost helps eliminate wasted media budget spent trying to convert users that have no proven likelihood of conversion
Instead, brands can reallocate this budget to digital advertising campaigns that target users with characteristics that are similar to existing policyholders users with high lifetime value. This helps drive better ROI from both individual customers and life insurance marketing campaigns since brands can rely on data-driven insights to inform how they spend media budget acquiring customers.
Bottom Line
Measuring lifetime value is one of the most important life insurance marketing tools that can help drive increased ROI from both individual users and your overall digital advertising campaigns. If you’re ready to take things a step further and start predicting customer lifetime value, reach out to our experts in predictive analytics and lifetime value to learn how we use Google Cloud Platform to help insurance brands identify their high-value customers.
Get in touch with the DELVE team today to learn how we helped Gerber Life Insurance increase policy retention by 59% at a 32% lower CPA.
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