Lifetime Value (LTV) has been discussed as an important metricin financial services marketing for many years. If you aren'tfamiliar with the term, it is basically defined as the projectedrevenue a given member will generate over the course of theirrelationship with the credit union. However, I would submit that itis often overlooked when making decisions about the aggressiveness,or lack thereof, of a specific marketing initiative.

Let me give an example. A few years ago, many credit unions wereoffering very dramatic interest rates on checking accounts. We hadone client who ran a checking promotion based on paying 4.01% APY.Although there were many requirements involved including a highaverage daily balance, monthly transactional minimums and the like,this offer was extremely compelling in a market environment wheneven large CDs were yielding only a fraction of this interest.Suffice it to say, this promotion generated a great deal ofattention and many people signed up.

This promotion was clearly designed to build market share and inthat regard it was very successful. Of course, it was notsustainable over the long haul and eventually the high interestrates were reined in. I'm OK with all of that. As I understood theintention, the promotion was never viewed as a short-term strategy.The client recognized that, if it managed these new membersproperly, a reasonable percentage of them would remain long afterthe initial promotion.

That's where LTV comes in. If your credit union has a goodhandle on the average value of its members, marketing decisions canbe made based on long-term benefits, not quick fix tactics. Thereare various formulas for calculating LTV and I won't endeavor to gothrough all the variables here. Typically these calculations factorin average balances of loans and savings per member, averageinterest rate margins, average per member income/revenue and costof providing services. The Kissmetrics Blog offers a helpful infographic that outlines the steps in calculatingLTV. The equation given is for retail service companies, but it canbe a helpful starting point for you if you're unsure of where tobegin.

This gets back to a discussion we have many times with clients –that of strategy vs. tactics. It's very easy to think tacticallyand move from one marketing initiative to another. What's moredifficult, but ultimately more valuable, is to have a full strategyin mind that drives your marketing initiatives. Using LTV can helpyou build out your strategy, because you'll have the long game inmind.

LTV also highlights the importance of another common metric –member satisfaction. As you well know, as you increase membersatisfaction, you can increase member loyalty and, eventually,margins.

Another example of using LTV metrics for planning marketingpromotions would be a refer-a-friend promotion. On the surface, itmay seem a little hard to justify paying out $50 or more tomotivate an existing member to help recruit a new one, but it maymake abundant sense for long-term revenue generation. Even with thefinancial incentive involved, most people are not likely to offerthe name of a friend or family member unless they are satisfiedwith their credit union relationship. So, in essence, you have onebrand loyalist advocating on your behalf to recruit another memberwith the potential to be equally loyal to your institution. Again,properly managed, it should be a good investment all the wayaround.

You know which products are most profitable for your creditunion. Taking that information and combining it with LTV data canhelp you decide where you need to focus your marketing dollars.However, do keep in mind that the marketing climate today may notbe the marketing climate of the future. The infographic I linked toearlier in this post can walk you through how to account for thosediscrepancies.

As you survey your current marketing initiatives, consider thelifetime value of your members. Having long-term goals in mind canhelp you optimize your marketing efforts today.

Thom Villing is president/CEO for Villing & Company.He can be reached at 574-277-0215 or [email protected].