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Entrepreneur's Journal: eBay's site revamp and the lifetime value of customers

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In a recent piece in BusinessWeek, there's an in-depth look at the revamp of eBay's (NASDAQ: EBAY) website. That is, the company is trying to bring back buyers – who have been moving to rivals like Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), and Yahoo! (NASDAQ: YHOO).

It's a smart move and I also think it shows the importance of a key concept: the lifetime value (LTV) of customers.

Generally, LTV involves the following: the profit per unit sold times the average units sold minus the costs of customer acquisition. This should be calculated over a period of time – say 24 to 36 months.

"We actually look at bookings just as much as revenue when we look at the LTV equation," said Jason Blessing, who is a general manager at Taleo (NASDAQ: TLEO). "We feel this gives us a clearer picture of what we are spending to get new year bookings. We feel that we are operating at peak performance if we are getting $2+ in new bookings for every $1 we spend on sales and marketing."

So what kind of strategies can help improve LTV? Well, I had a chance to interview Trynka Shineman, the senior vice president at VistaPrint (NASDAQ: VPRT).

According to her, a critical period is the 90 days of getting a new customer. "This is the most important time to establish a strong relationship with the customer," said Shineman. "If you can get a new customer to make a repeat purchase during that time frame, those customers are considerably more valuable over time than those that don't make a repeat purchase until later."

In the case of VistaPrint, about 63% of its bookings – in fiscal year 2007 – came from repeat customers. Shineman maintains:

"We have been successful because we have focused on making our transactional emails, such as order confirmation emails and shipping confirmation emails, into contacts that drive a subsequent purchase on our site. In fact, these emails have the highest open rate of any of the emails we send, which gives us a great opportunity to communicate to customers about other products and services. For example, we'll highlight products that are related to products they've purchased. This has proven to be an extremely successful approach for us. We have also developed other re-marketing efforts tied to the first purchase. These include inserts into our product packaging that showcase the full breadth of products we offer with an incentive to try a new product, and focus on making it easy for customers to reorder their business cards and matching products."

What's more, you should ask customers for feedback. "If you send out a semi-annual survey to customers, you are able to see areas where you can improve," said Shineman. "Customers who participate in these surveys and see the feedback that they give get put into motion will have a greater emotional connection to your company."

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

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Last updated: November 10, 2009: 02:45 PM

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