How to Grow Customer Lifetime Value With Gamification
“Can I have a Turkish Tea?” asked Julia, one of the customers from My Café restaurant mobile game.
I wanted to serve Julia the best and every customer for that matter. That’s why, I immediately began to gather tea ingredients like Cinnamon, Lemon and Caramel Syrup.
Suddenly, I realised that I was out of Star Anise, one of the rare yet crucial ingredients needed to complete the Turkish Tea recipe.
I felt disappointed and wasn’t excited to play the game anymore. So I simply shut the app only to see a notification pop up 1 hour later.
“Your daily bonus is waiting for you,” it said. I got curious, went back to claim my reward and you wouldn’t believe what I found.
A Star Anise, yes!
I felt so content, completed the Turkish Tea recipe and served Julia. After this, I kept coming back to the game app for more and played it straight for 6 months until I gradually lost interest.
This is one of the game experiences I got reminded of when I recently decided to write about increasing CLTV (Customer Lifetime Value) with gamification and you’ll find out why as you read along.
To be honest, I had no idea how to go about this topic. It’d only been a week since I’d joined Flyy and while I was still getting accustomed to Gamification concepts, there still was a long way to go.
So what did I do next? I took a step back and started thinking. I told myself that okay, I may not have a fair knowledge of CLTV but what's it that still makes me want to write about this topic?
I could figure out two reasons:
I wanted to learn, really bad because from how much ever I’d read about CLTV, I found it super interesting
The zeal to help companies with quality information about CLTV and gamification
With this thought in mind, I decided to go on a quest for understanding CLTV.
Quest for Learning CLTV - Day 1
I read articles, one after another and all I found was mere definitions, complicated phrases and formulas. It was like being bombarded with too much information. Half way through the day, I was exhausted.
However, I had somehow realised that CLTV has something to do with a business generating revenue out of a customer during a certain period of time. Still sounds shaky, doesn’t it? It did to me, too.
That’s why I wasn’t satisfied with my idea of CLTV and continued with my quest.
Quest for Learning CLTV - Day 2
Already into the second day of the quest, I thought I had by now gathered all the necessary equipment to complete my quest. I’d read plenty of articles, done my part of research.
But then there was one thing that was lacking - speaking to someone who brought the right expertise to the topic.
So our Co-Founder and CTO at Flyy, Venkatesh Rao and I ended up having quite a chat where we discussed CLTV in simple terms. He helped me clear out the thorns (gaps) from my path to understanding CTLV.
After this, I went back, learned some more and that’s how the quest finally ended.
So what you read hereon about CLTV and how gamification can help boost it, is a result of sheer persistence to deliver information that’s a rich mix of research plus people's experiences.
Getting into the basics
I know as a marketer/product manager, you’re probably well-versed with what a Customer Lifetime Value is and why it’s important. But don’t mind me sharing it again with you because I bring my own experience into perspective.
What is CLTV?
I’m going to ditch the complicated terms and keep it simple. Let’s go back to my My Café gaming experience. Every day, I’d get one free spin to unlock a daily bonus. But say I got curiouser and ended up buying a ticket to spin the wheel at-least a week.
Now, remember me mentioning at the beginning that I played the game for 6 months? So, the amount I paid for buying those tickets during my 6 months period is what determines my lifetime value.
This is only the beginning.
Next, say Vaishnavi, a growth marketer at My Café has to calculate CLTV. This is how he/she would go about it.
Customer Lifetime Value = Customer Value x Average Customer Lifespan
For simplicity's sake, let’s consider that users of a particular app use it for an average of 6 months. In these 6 months, each one of them spends $100/month on an average.
CLTV = $100 x 6 = $600
Let’s break CLTV calculation down with understanding visits from Julia, Sam and Adam, to My Café. Step 1: Averaging Variables
Customer expenditure per visit
Julia | Sam | Adam | Average |
$9 | $5 | $3 | $5.7 |
Purchase cycle - Number of visits per Month
Julia | Sam | Adam | Average |
12 | 8 | 4 | 8 |
Average customer value per month
Julia | Sam | Adam | Average |
$108 | $40 | $12 | $53.2 |
Step 2: Calculating Customer Lifetime Value
Now, let’s assume that people remain customers of my restaurant for an average of 10 months.
According to simple equation,
CLTV = Customer Value x Average Customer Lifespan
CLTV = $53.2 x 10 = $532
This means that if a customer were to visit My Café for another 10 months, I as a business would make $532.
I also got to know that as a general rule, the cost to acquire a customer (CAC) should never exceed 35% of CLTV for an app business to operate profitably.
Huh, not bad! I now at-least had a fair knowledge of CLTV. But again, I want to share something with you which I experienced while exploring how to calculate customer lifetime value.
I wondered - CLTV is clearly a game changer. If I know this value, I can easily focus on increasing sales. In fact, 81% of marketers consider CLTV monitoring as a crucial parameter, as per a 2018 survey by Criteo.
So shouldn’t this number be higher? Duh, obviously, right?
“Okay then, how do I ensure that my CLTV is higher?”, I thought. I began a quest again for the same and all the answers I found summed up to making customers keep coming back and buying more.
This meant I had to ace my user retention game and for straightforward reasons. According to Marketing Metrics, the success rate of selling to a customer you already have is 60% to 70%, while the success rate of selling to a new customer is 5% to 20%.
Quite a huge difference, isn’t it?
Furthermore, a study in the Harvard Business Review says that increasing customer retention by 5% can generate a 25% to 95% increase in profit.
But I got to know here at Flyy that increasing retention is really really hard and that's where Gamification comes into picture.
Here’s how -
How gamification can help reap CLTV benefits
So far, we’ve understood that in order to increase a customer's lifetime value, you must ensure that they come back into your app and come back often.