Cost per acquisition (CPA) on Facebook has increased over the last few years as news feed ad load nears saturation.
That’s a big problem for advertisers like DTC hair care and coloring company Madison Reed, which spends a large portion of its budget on Facebook.
The company is always on the hunt for ways to optimize its user acquisition costs, said CFO Carrie Kalinowski, and has found that focusing on lifetime value (LTV) early in the customer life cycle tamps down CPA.
Knowing how valuable someone will likely be to a brand over time lets the growth team calculate how much it’s willing to spend to attract that customer, and create targeting segments that are better pegged to overall ROI.
For the last two years, Madison Reed has been working with a startup called Retina that helps companies build look-alike audiences based on their predicted LTV, by crunching a brand’s first- and third-party data on a daily, weekly or monthly basis to score customer relationship profitability and what types of customers are most likely to retain.
Look-alike audiences are often modeled off of lists that include customers who are about to churn or maybe only purchased a single product and then never returned, which doesn’t make a lot of sense, said Retina CEO Michael Greenberg.
Madison Reed is running tests using LTV data to power its look-alike modeling on Facebook, and the results have been encouraging, Kalinowski said, with a roughly 50% increase in ROI in some cases. The company plans to keep scaling its tests.
“If I know what she looks like and what her attributes are, I can hand that information off to Facebook and find more of those customers,” Kalinowski said.
Madison Reed can also use this information to “slice and dice our data” and learn more about how certain custom characteristics or actions impact downstream retention, she said.
The brand has discovered, for example, that the first purchase made by more than 50% of its gray or red-headed customers is a color subscription, which makes them extremely high value. Madison Reed also found that customers who buy its gloss product after having their hair colored at a Madison Reed color bar tend to have a higher Net Promoter Score.
Madison Reed even proved a long-held hypothesis: Customers who visit the Madison Reed website but don’t make a purchase and then return to the site after having their hair done at a physical color bar location become some of the company’s highest-value customers.
“There are so many different purchase paths,” Kalinowski said. “But with analytics we can figure out which are the most valuable ones.”
But LTV data isn’t only relevant to the marketing team. Madison Reed is starting to show this data with its customer success representatives so they can take a more personalized approach when dealing with customer issues. Kalinowski also shares LTV metrics with Madison Reed’s investors and board members as a measure of overall financial health.
“This is definitely a long-term strategic initiative for us,” Kalinowski said. “We’re building a muscle and we’re starting to integrate this sort of data into our regular, daily life.”