LIFETIME CUSTOMER VALUE DRIVES MARKETING BUDGETS
This is Jane. She's my average customer.

I've never met her. It's impossible for me to be able to get to know her. I can't think of even a minor business reason why I should. I don't know where she lives. I don't know what she does. I don't know if she's bright or dull as a drip faucet.

Yet, I base my entire marketing budget, and the metrics I use to evaluate how effectively I'm using that budget, entirely on Jane.

Let me tell you what I do know about Jane.

Jane spends $50 a month with me. She'll stay with me for 1.92 years. And she'll spend $1154 with me over that lifetime. That will eventually become a net lifetime contribution of $543.

On average, 3,200 Janes buy from me each year.

JANE DRIVES BUDGETS—JANE DRIVES METRICS
With that information in hand, I know all I need to know to both develop a well-grounded and realistic marketing budget, and to measure the effectiveness of my marketing programs at the same time.

I know her lifetime value as a customer.

I spend company money to achieve the three primary marketing goals of acquiring new customers just like Jane, getting Jane to buy more, and getting Jane to stay a customer for a longer period of time. And when the spreadsheets come out and the yearly Marketing Budget Bash commences, I'm always asked two questions. And I always let Jane answer for me.

What's the basis for this budget?

Jane says she knows exactly what we should spend to acquire, grow and retain her—she doesn't need to know what P&G or any other company spends. Jane looks at her net lifetime contribution and tells us that we could spend close to $2,000,000 a year on it without losing money. We allocate 70% of that to Sales and Marketing. These two groups do a 50/50 split and each ends up with about $700,000 for the year.

How will you know if it's working?

Jane says there are three simple metrics. How many of her I have; how much she's spending each month; and how long she's spending with us. The first two we can measure within a few months. The last, of course takes longer. So we profile her again and again. If Jane's doing more of those things, our marketing is working. If she's not, neither is it.

A SOLID FOUNDATION FOR BUDGET AND MEASUREMENT
What we've done with Jane is used her lifetime customer value as the basis for establishing our budget. And we've taken the same criteria we used to determine lifetime value, and made them the core of our effective-marketing measurements.

Our point of focus is Jane. Our interests specific. Our results clearly measurable.

Lifetime customer value meets what I consider to be the three primary criteria of any budgeting methodology:

	It relies on a set of objective metrics—your metrics—and not industry averages, or best practices, or prolonged trial-and-error
	It comes from objective information that is easy to find.
	And it provides not just the budget basis, but the basis for the metrics to measure marketing effectiveness.