Google Analytics is probably the most useful analysis tool ever built. If you think that’s an exaggeration, just ask 51% of Fortune 500 companies that use it daily. On a global scale, over 3.5 million businesses are using Google Analytics right now!
This tool is so popular because it uses artificial intelligence to analyze data and offer insights. With its advanced machine learning algorithms, there isn’t a metric that Google Analytics can’t analyze. Not to mention, its reports are simple, easy to understand, and beneficial for strategy formulation.
We could sing praises for Google Analytics all day long, but that’s not what this post is about. Instead, we’ll be focusing on the analysis of a particularly important metric in GA. This metric is an essential indicator of long term business success and requires detailed analysis to gather valuable insights.
The metric is, of course, Customer Lifetime Value (CLV). We’ve already discussed how AI is rediscovering CLV in the modern age. Now we’ll take a look at a practical implementation through the Lifetime Value report generated by Google Analytics.
So let’s dive in.
What is Customer Lifetime Value?
Let’s start by understanding the concept of customer lifetime value.
Customer lifetime value is the total amount of money a customer spends with business throughout their customer lifetime. There are several ways to calculate CLV, although companies now rely on advanced analytics to do it.
It’s important to know that CLV is always a projection. So the best lifetime value calculation is the one that estimates it most accurately. Although, it isn’t easy getting the predictions right. Some CLV predictions, known as historical CLV, rely on customers’ past behavior to assess future purchases.
Others, known as predictive CLV, consider extraneous variables that affect consumer behavior and, by extension, CLV. Predictive analytics calculate CLV according to the predictive model, much like Google Analytics. We’ll talk more about that later on.
Why do Businesses need to Measure CLV?
So why is customer lifetime value such an essential measure of business success?
The short answer is: it increases long-term ROI and improves business growth.
For a more detailed answer, let’s take a look at an example.
Suppose you own an ice cream parlor, and you want to increase sales. Naturally, you run advertising campaigns or offer special discounts that promote purchases. But which customers are giving you the most returns? You could channel more resources to target those (more profitable) consumers if you could answer that.
That’s the question CLV answers.
Customer lifetime value tells which customer spends the most money on your products or services over their lifetime. That’s why this metric is so crucial for businesses. It allows brands to make the most from their consumer interactions by targeting customers most likely to purchase.
On the digital front, the benefits of CLV are endless. There are dozens of digital channels through which brands and customers interact with each other. It would be very costly for digital marketers to test each channel’s effectiveness without a measure like CLV.
By combining CLV with marketing attribution models, businesses can know which digital channel drives their website’s most profitable customers. Data is the foundation for these insights. If companies want to know how to improve their ROI through CLV, they need AI-backed data analytics.
Almost something like Google Analytics.
Step by Step Guide for Google Analytics Lifetime Value Report
Google Analytics offers an option of ‘Lifetime Value’ report to its users. This report provides valuable insights for businesses, but only if you know how to understand it properly.
That’s why we’ve put together a step by step guide to exploring the Google Analytics Lifetime Value report. Let’s begin.
1. Opening the Lifetime Value Report
When you open your Google Analytics account, you’ll see a menu on the left-hand side. In this menu, under the ‘Reports’ tab (box #1), click on the ‘Audiences’ option (box #2).
A drop-down menu will appear. From this drop-down menu, select the ‘Lifetime Value‘ option (box #3). This action should take you to a layout similar to the one below.
2. Selecting Metrics & Time Period
Once you’re at the Lifetime value report, it’s time to select the metrics. You can generate the lifetime value report for any number of metrics. These metrics are visible in the image below.
But before you can get to that, you have to set the acquisition date range. This option selects the range of dates you want CLV calculated for and displayed in the Google Analytics dashboard. The date range is present to the left-hand side of the bar (green box).
Next, you need to select the LTV metric, displayed on the left most of the bar (blue box). You can choose this metric from the drop-down menu shown above.
Finally, you need to select a comparative metric (red box). The image below shows each selection that you’ll need to make at this stage. Once you have chosen all the metrics and the acquisition date range, select the time representation of the graph based on day, week, or month available at the right-hand side of the screen (purple box).
The report itself will appear as a table under the graph.
The steps are as follows:
- Select acquisition date range
- Determine LTV metric
- Choose comparative metric
- Select time representation according to day, week, or month.
We’ll be using the metrics of ‘pageview per user’ and ‘sessions per user’ for the rest of the example.
3. Breaking Down the Graph
So what’s going on in the graph?
Well, remember the metrics we selected in the previous step? The graph shows the LTV of site users according to those metrics over the time frame chosen.
The Red arrow represents the acquisition date of the site users on Day 0. According to sessions and pageviews, the Green arrow shows the cumulative average of the acquired site users after six days. The users’ overall LTV is increasing for approximately 12 days after the acquisition, and then it plateaus.
This graph, however, shows only half the picture. The rest of the story appears in the table below. So let’s take a look.
4. Understanding the Table
When you take a look at the table, you’ll see three columns. The left column (column 1) shows the ‘Acquisition Channel’ which consists of:
- Direct channel
- Organic search
- Other channels
The middle column (column 2) shows the number of site users for each acquisition channel and the selected time frame. The right column shows (column 3) the selected LTV metric, which is pageview per user in this case.
It’s the third column that you really need to pay attention to. That’s because this column shows the CLV of users for the selected metric (pageviews) according to the acquisition channel.
Let’s take a closer look at this column.
5. Dissecting the Data
Immediately, the pageviews per user [LTV] for direct channels (4.33) and organic search (4.81) are noticeable. They are well ahead of the rest. But of equal importance is the pageviews per user from social channels (1.24). These lag behind the other acquisition channels.
These numbers provide valuable insight. The users being directed from an organic search view almost four times as many pages as those from social channels. This means search engine channel users have 4x LTV as compared to social channel users.
But there’s yet another layer of the information under this!
6. Exploring Further
Remember the first column that showed the acquisition channel?
You’ll see a bunch of different options at the top left of the table if you click on the drop-down menu. Among these options will be the ‘Acquisition Source‘ that shows the exact sources of your traffic. Exploring these sources gives you a better understanding of where the traffic is coming from.
For example, if you look at our traffic figures, you’ll see what we mean. While we were looking at the organic search LTV only, we didn’t know where the traffic was coming from. But by selecting the ‘Acquisition Source’ option in the first column, we can get a detailed look.
Now we know that Google and Flipboard.com are responsible for the highest LTV consumers.
According to the users’ column, only a few users are coming from these channels. That’s why CLV is a better measure of profitability rather than simple traffic volume. The users from Google and Flipboard.com spend more time on the website. So they are more likely to convert to a lead and then a customer. Besides, aren’t 5 customers better than 500 visitors?
The lesson – don’t worry about the total number of users on your website. Instead, worry about how many valuable users are coming to your website. And that can only be revealed by the Google Analytics lifetime value report.
It’s essential to remember CLV isn’t a guarantee of purchase or sales. But it is the best way to understand and predict consumer trends, not just at surface level. There are too many metrics that give marketers a false picture of what’s really happening. But CLV peels the layers of the data and allows the collection of actionable insights.
And so far, Google Analytics is the best way to understand customer lifetime value. The trick is to experiment with relevant metrics. We used pageviews per user and sessions per user in this example. But you can play around and find the metrics that give you the most valuable insights.