Thursday, May 31, 2012

3 ways to use customer lifetime value to maximize revenue

Many companies have long recognized the importance of customer lifetime value (LTV). There's no shortage of customer lifetime value calculators and formulas out there to help companies compute LTV and use it to predict and evaluate the potential results of new marketing programs. But few companies understand how to take LTV to the next level and use the analytics to generate triple-digit growth for their business.

Customer lifetime value essentially tells you the projected revenue a customer will generate for your company over his or her lifetime. From this, you can determine several powerful marketing metrics: how much you should spend to acquire the customer, how much you should spend to retain the customer, which customer segments to target, and the ROI of your marketing campaigns.

I took the concept of LTV to heart early on, especially with advertising costs soaring through the roof during the dot-com era. My mentors emphasized how crucial it was to properly calculate your customer lifetime value to inform your cost per acquisition (CPA) choices, and develop your online customer acquisition strategy and customer retention strategy.

Herein lies something most companies don't understand. They often don't think about optimizing revenue as a way to increase a customer's lifetime value and thereby boost profit. Rather, they focus on minimizing costs, especially marketing spend, to increase margins. So here are three core steps you should bake into your customer lifetime value calculation process to help you maximize your revenue:

1. Determine how long your customers generally stay with you. If you're just starting out, take it easy here in your estimate so you don't lose your shirt. If you've been in business for some time, review your metrics monthly and by acquisition source.

Tuesday, May 29, 2012

Stroll's first step to success: Unraveling the riddle of online customer acquisition

Everyone remembers the dot-com bubble of the late 90s and its subsequent collapse during 2000 to 2001. Right after the bubble burst, online advertising also took a hit and became much more affordable than the ridiculous costs and expectations of when sock puppets ruled the world.

That deflation convinced me online marketing was the wave of the future, and it could achieve the economics needed to drive triple-digit sales growth for products and companies. It was then that I realized the more I could entrench myself in all things online, the more successful we would become as a company.

This is when I started unraveling the riddle of online customer acquisition. I found that the secret ingredient to a successful online customer acquisition strategy is to target one advertising channel at a time (unless you've got the money to burn).

Thursday, May 24, 2012

Building the tribe: How I fired my best friend and lured a new partner

It's a tough day when you fire your best friend and subtract someone important from your life. But business isn't a popularity contest, and you learn early that success often depends on surrounding yourself with people who reflect your values and vision, and those who can bring something more to the table than just what you know.

The year was 2002, and Stroll was just hitting its stride. We went from nowhere to 50 sales a day. It totally swamped everyone. We didn't have enough people. We didn't have the right systems and everything had to change quickly.

Perhaps no one was more stressed by it all than my best friend, who for the past six months had spent just about every waking hour by my side. We were brothers in arms, sharing the exhilaration of seeing the first few orders come trickling in over the Internet. We weathered the frustration of working ungodly hours around the clock, occasionally putting packing peanuts in a garbage bag to make a nice pillow for another night crashing on the floor in our office.

Monday, May 21, 2012

The garage story

Every great company has a garage story. Most are embellished, many are made up. My company's garage story dates back to 2000, when I decided to open a business in my dorm room at the University of Maryland. At the time, I had stumbled upon a study aid that had been developed by a Swedish company. Youthful enthusiasm put me on a plane to Lund, Sweden, where, as a 21-year-old kid, I sat face-to-face with the company's head of marketing.

I played my hand big. I explained that, as a college student, I knew better than anyone the value of their product. And who could market it better than me? It was the Wild West days of the Internet, and I used that exuberance to argue my case that the web, still in its infancy, provided the ultimate accountability.

By marketing the product offline -- gaining free access to the campus mail system by donating the product to the libraries -- and capturing the orders online, we could monitor and track our ROI, continually improve performance, and hit the ball out of the park.

They bought what I was selling, and agreed to co-op the costs of the advertising. I returned to my cramped quarters believing myself to be Sean Parker, Mark Cuban, or any of the other masters of the Internet bubble. The delusion popped as hard as that bubble did in 2001. Twelve months into marketing the project, the Swedish company sent an email. It decided to pull the product from the U.S. I was left without a product to market, floundering.

Thursday, May 17, 2012

Hypergrowth: Framework and tools for igniting triple-digit growth at any company

If you're not growing, you're dying. And if you're not growing extraordinarily fast, you are missing the full exhilaration of life. At least, that's my mantra. Since 2000, when I started my business, I've played with speed. It's incredibly rewarding pushing the limits of what most people believe is possible while using limited resources. But it's not for everyone. The book, "Now, Discover Your Strengths," calls it always living with a "whisper of discontent."

I'm Dan Roitman, an entrepreneur unlike any other. I've never invented a thing. I don't produce or even own products. I'm not some computer-programming whiz kid. My success started in a dorm room at the University of Maryland, and led me to build a $40 million business that grew an astounding 135 percent last year.

Over the past decade, the company I founded, Stroll, has transformed an all-but-forgotten language learning system into the second best-selling product of its kind. That product, the Pimsleur Approach, is second in the market only to Rosetta Stone, a publicly traded company that I guarantee you've heard of.

But whether you've heard of the Pimsleur Approach or not, I'm sure you've never heard of Stroll. We are that secret sauce, the "Intel Inside," that has allowed the Pimsleur Approach to steal more than $40 million of market share from Rosetta Stone, despite the fact that the company has a worldwide footprint. It has more money, employees, exposure, and awareness than Stroll, but we're nipping at their heels.