Calculating lifetime customer value using data-driven metrics with Valentin Radu

Speaker 1:

Running an agency can be a lonely proposition, but it doesn’t have to be. We can learn how to be better faster if we learn together. Welcome to Agency Management Institutes: Build a Better Agency podcast, presented by a white label IQ. Tune in every week for insights on how small to mid-size agencies are surviving and thriving in today’s market. With 25+ years of experience as both an agency owner and agency consultant, please welcome your host, Drew McClellan.

Speaker 2:

Hey, everybody. Drew McClellan here from Agency Management Institute. Welcome back to another episode to build a better agency. We are going to talk about a topic that I think is super important and one we don’t actually talk about as often as I think we should inside agencies. So I’m excited to have the conversation and to bring you along for the ride, but before we do that, I just want to remind you that we have some great things going on at AMI that you may or may not be familiar with. A couple of them are some of our peer groups. So we have a peer group called the Key Exec Group. Think about your right-hand person or people. A lot of times they’re your COO or your director of client services or it might be a mix of those folks. We had agency owners ask us to bring those folks together so that they could meet people who do the same work they do in support of the agency owner’s goals.

And so we do that every October and April. We have peer groups for key execs that come together and talk about all the things they’re dealing with, the operational issues, people issues, whatever they may be, how to improve themselves, how to sharpen their own saw, and of course, how to help their agency owner accomplish the goals of the agency. So if you want to learn more about that, you can read more about that on the website. You get to send up to three people for one membership fee, so you can ask us more about that. We also have a virtual peer group. If you’re an agency owner and you don’t want to travel with one of our live peer groups, we do have peer groups that meet once a month for about 90 minutes, and there’s about 10 agency owners in those peer groups.

This is actually not a COVID creation. We had these before COVID. We have a lot of international folks who listen to the podcast and want to participate and obviously, don’t want to fly to the US twice a year for our live peer groups, so that’s why we created the virtual peer groups. It’s a mix of agencies from all over the world. I would say most of them are in the US or North America, but that’s not always the case. But anyway, they get together for 90 minutes, follow an agenda, talk about the challenges they’re facing, learn from each other. Many of them are connected on Slack or some other way. Throughout the month, they keep talking to each other and sharing resources and supporting each other. So if you want to learn about either of those, the key exec group or the virtual peer groups, you can go over to the Agency Management Institute website and under the memberships tab, you can read more about both of those.

All right, let me tell you a little bit about our guest, Valentin Radu, is a recovering agency owner, still owns an agency, but has started and sold and started and failed and started and succeeded with agencies, and one of the things that kept coming up in his world was the understanding that our world is being much more driven by data than ever before. And particularly, he was fascinated by one piece of data, which is lifetime value of a customer and how do you calculate it, how do you influence it, how do you monetize it if you’re an agency when you help clients improve it. He’s writing a book about it, which will be out in September, but he also has some tools built specifically for agencies to learn more about how to calculate and influence lifetime value of a customer. So really, I’m expecting a great conversation and I’m excited to introduce him to you. Let’s get to it. Valentin, welcome to the podcast. Thanks for joining us.

Speaker 3:

Hi, there, Drew, and hello everyone. I’m really excited to be here with you.

Speaker 2:

Tell everybody a little bit about your background and about your company because I want to dig into what you know and it’ll help them to have some background on your expertise.

Speaker 3:

Of course. As I almost always say, I’m an export kid from Bucharest, Romania. I’ve built four companies so far. Right now, I’m building Omni Convert, which is a company which is focused on data-driven experimentation and improving customer lifetime value for companies all over the world. We have a software, we have a methodology, I’m writing a book about it, and we also have an education platform called the CVO Academy. My mission is to evangelize the concept of TOF customer value optimization and that’s happening because my first company was an eCommerce company here, and I was struggling like crazy to make it profitable until I realized that I was not using the right formula and the right metrics. And that’s when I’ve discovered customer lifetime value. 10 years after that, Omni Convert is serving hundreds of eCommerce and agencies throughout the world to improve this type of metrics.

Speaker 2:

Let’s talk a little bit about lifetime customer value. I think we banty that term around, but give us your definition of it and then we’ll dig into some of the learnings that you have around it.

Speaker 3:

Yeah, of course. Customer lifetime value is the predictive amount of the value that a company is going to get from the customers that they are acquiring throughout the time, relying on the data that they’ve already have about their former customers. In a nutshell, it’s a predictive measure of how much revenue or margin, depending on how it’s being calculated, you are going to get from a new customer. This is a very extremely important metric because it’s allowing you as a company to know how much you can spend to acquire a customer in order to be profitable, taking into account the lifespan. So how much time is going to stay that customer with you, making business with you, and also the amount that they are going to spend. Basically, that’s what customer lifetime value is. It is not a new metric. It’s coming back from the 1950s, to be honest, but it’s an extremely important metric which is not that easy to calculate because it’s not in Google Analytics. You can’t find it in your PNL; however, your entire business existence depends on a healthy customer lifetime value.

Speaker 2:

I want to dig into how we improve customer lifetime value, but as agencies, and we actually teach some of this in some workshops that we do, but I believe this is a topic that we should be having with clients, helping them define the lifetime value of a customer and then increasing the value of that customer and also elongating the relationship. But how does an agency help a client calculate lifetime value of a customer?

Speaker 3:

Yes, that’s a great question. If the client is not knowing what’s their customer lifetime value, agencies should be more data-driven. So basically, they should be assisting them. There are many ways. One way is to get your hands dirty and to dive into their data and to analyze, “Okay, you have this cohort of all the customers from the beginning of time,” let’s say, and then you look at how much they’ve spent. So what’s the total revenue, what’s the total margin? What is the purchase frequencies? So how many orders or transactions or months, subscription months they’ve paid to your client? And then you look at the lifespan, which takes into account the customer retention rate. There is an entire formula about it. I’m not going to get into this too much, but I’m launching a book about it. For whoever is interested, you can find it out there or you can use technology such as ours. We have a technology which is calculating automatically this kind of data for eCommerce companies, B2B and B2C. Mainly that’s how you do it. And what it’s-

Speaker 2:

What if it’s not eCommerce? What if it’s a law firm?

Speaker 3:

If it’s a law firm-

Speaker 2:

Is there a poor man’s way of tracking it?

Speaker 3:

Of course. Basically, in my book, I’ve given a tool, an instrument where you simply upload the entire database, let’s say, all your customers, how much they’ve spent throughout their entire existence, how many orders or how many transactions they’ve got, and this is calculated automatically for them. So there are, let’s say, Excel sheets that you could, of course, use in order to make it happen. The challenge with this type of ad hoc research is that it’s not giving you the trend of the lifetime value. And one important aspect is that any data, any metric, if you look at it, it doesn’t mean too much. So what it’s important is the trend and lifetime value is also on average. The trap of the average is that you don’t have the context. If the lifetime value, let’s say, $800 per customer. Is that good or bad?

How was last year? If it was $600, that’s good. If it was $1,000, that’s not so good. How was it one month ago? So the trend of the lifetime value is important and also, the segmentation. If you break down, let’s say, for that law firm, for your example, Drew, but if you segment your customers, among the ones that are, let’s say, paying the law firm for services related to divorce or whatever, any kind of topics, what’s the lifetime value of a customer which is coming with the problem related to the workforce or related to a divorce or related to accidents or related to injuries? So that’s important because that’s guiding you towards where to focus your marketing, advertising efforts and what kind of customers are the most lucrative for you because there is the lifetime value, how much you are getting, but it’s also how much it costs you to acquire that customer and how much it costs you to serve that customer. Maybe the lawyers for the, let’s say, workforce related issues are way more expensive in your firm.

Speaker 2:

Yeah, so to your point, I think you’re right. I think we as agencies can help clients calculate three things. Number one, what is the average lifetime value of a client? So on average, we have a client and they’re worth $10,000 or $5,000 or $1, what does it cost to service that client? So [inaudible 00:11:30] say it’s $10,000, but it costs us $5,000 to service the client, which means profit-wise there’s $5,000. So I don’t really want to spend more than $5,000 to get that customer. I’m surprised, actually, at how often agencies don’t talk about those three numbers with their clients when they’re helping their clients set budget. It would be a great way to help a client be smarter about budgeting and measuring success against that budget, right?

Speaker 3:

Exactly. And Drew, if you think about it, it’s so strange how many companies, and not only small companies, even mid-size and large companies are shooting in the dark when they’re doing their budget exercise because they are not customer-centric, even though they claim they are. Their CFO is doing this budget and they look at, “How much sales we’ve got last year? What is the year-over-year growth rate? Let’s do it like this. Let’s forecast the 25% growth,” and then there’s no data driven there. So they are not focusing on who’s actually generating that revenue and that margin, which is the customer. That’s the unit economic. The customer behavior is the one which is causing the profit and the revenue to happen, and we must transition to a model which takes into account who are our best customers and how much they’re spending with us.

Speaker 2:

I’m curious. As you are looking over the landscape of agencies, and I want to get back to this lifetime value, and not only how do we calculate it, which we’ve talked about, but more importantly, how do we help clients improve it? Because I think there’s a huge value that we can add for clients, is to help somebody elevate the lifetime value of a customer. But before we get there, I’m curious what you are seeing in the agency landscape and how you envision… As you work with more agencies and look over the world that in which we operate, what are you seeing in terms of trends of how agencies are showing up and the work that you see them doing with clients?

Speaker 3:

What I’ve noticed in the last two years, Drew, is that we see more agencies struggling to acquire new customers and to keep their existing customers and that’s, of course, because the demand is not so wild as it used to be one and two years ago.

Speaker 2:

Yeah, agreed.

Speaker 3:

And that means the agencies are waking up to a reality where they need to become way more data-driven. The brief, let’s say, that the clients are giving us, any agencies, we do have a consulting arm as well. We have around 25 people which is doing managed services for other clients in which are training other agencies to do this type of customer value optimization services and use our technology. So we’ve learned that what is the most important and the most impactful thing when an agency wants to differentiate is to know more than their clients about their business model because that’s the sort of like you are the doctor and you have a patient which is struggling there.

So unless you do this and knowing this kind of data, asking a few questions, you are showing, you are demonstrating to your clients that, “Oh, fuck. I don’t know about the lifetime value. I don’t know what is my customer acquisition cost. I don’t know what is the ratio between lifetime value and customer acquisition costs.” So without knowing this type of things, then you can’t really help your clients. My vision is that in the future, agencies will be obliged, let’s say, in order to survive and then thrive, will have to know this type of metrics. We’ll have to come up with the model which is making sense because at the end of the day, it is not only about selling the promise of a better future to your clients, it’s actually delivering on that promise. So basically, that’s the law of trade itself under promise and over deliver.

Speaker 2:

Yeah. Before we hit the record button, you were saying that you’re noticing a shift in how agencies are structured and how they’re serving clients. You used the word syndication. So talk a little bit about what you’re seeing.

Speaker 3:

What I’m seeing is that as the customers, let’s say, as the customers as in eCommerce companies or clients that are getting to the agencies, as they’re struggling to be profitable, they are making decisions way harder than before. They are not throwing some money on some ad campaign or, “Let’s do email marketing,” and whatever. They are more cautious and skeptical when they are getting into a retainer with an agency, which means the agencies are now challenged to be really impactful in the life of their clients, which means that they will have to work… Let’s suppose you’re an email marketing agency. If you’re an email marketing agency, your success, your progress is depending on the quality of the traffic that the media agency is doing and on the website’s conversion rate.

So basically, it’s not like a siloed approach. You have to work with other service providers which have to be at a level of understanding and to provide, let’s say, some sort of a unified or a consistent customer journey to the clients. I’m seeing this trend of syndication because there are now email marketing agencies working with media agencies, with SEO agencies, with content agencies, and they are now at a level where they are working together for a client offering a real impactful service. So I think this syndication is the way to go in the future. And of course, the other trend is that big agencies are leading up the smaller ones offering one size fits all approach, like a full-service, digital agency.

Speaker 2:

One of the things we’re seeing a lot of is the pendulum is swinging. A few years ago, clients wanted lots of different agency relationships. They wanted a specialist for everything, but they wanted to manage all those relationships. So if you were a generalist agency, it was a struggle for you to get a big piece of the client’s business because they had an SEO agency, a PR agency, a media buying agency, but the client was managing all of those. And now what we’re seeing is the pendulum is swinging and client is saying, “That’s too much work to manage all those relationships. So I want to pick a core or a lead agency and I want them to have partners to bring into the relationship that have the specializations that the agency doesn’t have. So if you’re a brand agency or you’re a messaging agency or you’re a content agency, you can be our lead agency, but you need to bring in the SEO agency or you need to bring in the PPC agency or the PR agency. You’re going to manage all of them for me and you’re going to bring me a unified product or suite of services. I’m going to pay one bill to you and you’re going to pay all of the other agencies or all of the other vendors.” Is that what you’re seeing too?

Speaker 3:

Yeah, I’m seeing this happening for sure, Drew, because the owners, let’s say, the owners or the clients simply can’t cope with the advancements on all of those different channels or approaches, and that’s why they need, let’s say, a very reliable and data-driven agency that they can trust and then they are, let’s say, being used as a consultant, as a strategy advisor, as someone that actually knows if they should be working with that SEO agency or with the other one. And basically, that’s the trend. The alternative, of course, is quite grim for the specialized agencies, which they don’t have good relationships with other agencies and they also don’t know about the business model of the clients that they are serving the entire business model because there were all these spikes and glamorous ideas around influencer marketing, about this, about the other, shiny new objects. But now, these days are gone. You have to deliver positive return on investment. If you can’t do that, the patience is not there anymore for the clients.

Speaker 2:

Yeah, that’s certainly one of the things and we saw it a little bit pre-COVID but boy, are we seeing it post-COVID that clients’ tolerance and patience for results, the window gets shorter and shorter and shorter. They’re under an incredible amount of pressure to deliver results and to prove “For every marketing dollar I spend, here’s what I get back.” And their tolerance for not being able to prove that and not being able to do it pretty quickly is short right now, I think.

Speaker 3:

That’s right. And if you think about it, Drew, it’s not going to be way better as the economy is not going to get into this V shape very, very fast. That means the demand is not going to be as high as it used to be and that means the companies will be way more skeptical about onboarding an agency with two years retainers and very bad terms when it comes to canceling the contract.

Speaker 2:

One of the things that you just talked about I think is so critical, which is agencies understanding the entirety of the business model of the client. So not just understanding their marketing but understanding their customer base, understanding how they recruit talent, understanding their distribution, their packaging, their supply chain issues, all of that. I think some agencies struggle with the idea of being data-driven. I think that’s hard for them to gather the data. They don’t know how to crunch the data. We do an annual salary and benefit survey and we just released the 2023 salary and benefit survey and for the first time, we had enough respondents for data analyst that we could look at average salaries for that role, but that wasn’t even a role that lived inside an agency five years ago. So talk about how you are seeing agencies grapple with the idea that they have to be more data-driven, and how are they dealing with that?

Speaker 3:

It is becoming, of course, mandatory to have someone that can crunch the data and that could understand the data, that could understand the concepts like minimum sample size or statistical significance or things like the trends. I’m talking here not only about what I’m preaching about, customer lifetime value and the business model of their clients. I’m talking about any kind of endeavor that you’re doing. So let’s say if you are an SEO agency and you want to produce content, you have to go back in time, you have to look at the topics that you’ve addressed, you have to look at the bounce rate, you have to look at the number of leads that that type of content has generated down the line and for that, you need to be able to crunch the data. So the ones which are just staying on the creativity side of things are going to be left behind because even the CMOs are having a lot of pressure.

I’m talking here about larger companies. CMOs were in a very good position because the demand was there. They could spend the money on that, that, and the other, but now we have the CFO taking the wheel and they have to deliver to the CFO, which means that’s why performance marketing is way more important right now than brand marketing, and that’s why those agencies that are in this creative side of things, they will have to deliver data reports no matter what they are selling. And that’s why you need monthly reports, impact reports, quarterly executive summaries and so on which means that if you’re an agency that doesn’t get data, you should internalize this type of know-how. And if you are an agency, which is not big enough, let’s say, you have to do it yourself as a founder because the days are gone where you could scale your agency by…

I don’t know, you got another client and you hired another four interns that you were kind of trained and then you’ve left them behind and then suddenly, you had 50 people agency. You can’t do that anymore. There is this balance and that’s how the agencies are actually growing. The founder is so inspired and passion and he gets it, and then he has to shift his focus from selling to new clients to training and hiring incredibly talented people that could get what he’s all about and that could scale further, but you can’t do this right now unless you are being trained yourself. And that’s why you have to become the knowledge hoarder in your agency.

Speaker 2:

But that is a challenge. How do we do that and run the business and stay in touch with clients and prospect for new clients and blah, blah, blah, blah? It is a challenge and it is a challenge because a lot of agency owners and leaders aren’t data-driven themselves. They grew up as art directors or writers or whatever and the business has shifted so much that, again, I think this is why we’re seeing more emphasis on a role of a data analyst agency. Leaders are bringing an expert in that can help them interpret the data so that they can apply the storytelling that they want to the data, but they need someone to help figure out what the numbers mean and how they can translate those not only internally so that the work of the agency is better, but also how do they translate that for clients so clients can understand it.

Speaker 3:

Yeah, it’s indeed challenging, Drew, and there are many challenges at the same time. I do feel like in the last, I don’t know, less than a year, I think the music is way more alert. We have all to dance way more faster and the chairs are not so many. So you start to grab a chair, you need to be way more agile than ever before. And that’s also a good thing and a bad thing, I can say, because as a founder, let’s say, let’s focus a bit on the life of the founder of an agency. And I share this with you because I grew an agency, I failed with an agency, then I built another company and we have an agency component within us.

So the moment when I realized and I woke up to the reality that, “Hey, I can’t have a life anymore and I’m going to face a divorce soon if I’m not changing something in my existence,” was when I became truly data-driven and I’ve analyzed all the hours that everyone was spending by the type of work. We had the designers, we had copywriters, we have data analysts, we have CRO strategies, and I’ve broken down this and I realized, “You know what? We can’t work anymore with clients, with companies that are having less than 500 employees. Those are not our best customers and that was not so well received. Might be because the best companies that I wanted, and my initial vision is, “Well, let’s impart the small ones like we were,” but when I looked at the data, I realized that they were so chaotic in their, let’s say, decisiveness. They were saying, “Yes, we’re going to do this. Let’s improve this type of thing,” and then in two months they changed their minds. They wanted to do that and then the other because they weren’t stable and data-driven enough.

And unfortunately, this came and the services that you are selling, you have to make up your mind and to understand that you can’t sell like we were back in 2016. Our biggest client was a six-figure a year, and our smaller client was a five-figure a year and that’s not good. The scale was so disproportionate and you’re investing so much on that. And with this type of data-driven approach on your own business model, you’ll understand, “Oh, we are serving these ideal customers because they have the highest, guess what, lifetime value and our cost to serve them is the lowest and their churn and our retention rate is the biggest with them because that’s the lifetime value so high.” And when you realize that, it’s all changing because you are not broadcasting, “We are doing this, we are doing that for this type of customer, for big ones, for smaller ones.” And now basically, when it comes to us, we do know who we are serving and we do know that we can scale to another vertical or to another type of customer down the line. That’s a cold shower that any founder and any agency leader should take because otherwise, they will worry themselves into work.

Speaker 2:

Yeah, it’s a challenging business and it’s changed so much that accepting the fact that we have to shift the way we do business is certainly part of our reality today. I know you’ve spent a ton of time not only looking at how to calculate customer lifetime value, but what are the elements that we as agencies can help clients focus on to improve that value? I want to ask you, I want to dig into that, but first let’s take a quick break and then we’ll dig back into customer lifetime value. We’ll be right back, guys, to talk about that.

Hey there, just a quick interruption. I want to make sure that you are aware that you are cordially invited, not just invited, but cordially invited to join our Facebook group, our private Facebook group. All you have to do is go to Facebook and search for Build a Better Agency and you’ll find the Facebook group. You have to answer three quick questions. You have to put in the agency URL, you have to talk about what you want to learn from the group, and you have to promise to behave yourself and that’s it. And then we’ll let you in and you can jump into the conversation with over 1,000 other agency owners and leaders. There’s a robust conversation happening every day. People are sharing resources and best practices and discussing everything from work from home policies to maternity and paternity policies, to biz dev strategies. So come join us and jump into the conversation. Speaking of conversations, let’s head back.

Okay, we are back and we’re talking about data, but we’re talking specifically around data around helping clients calculate the lifetime value of a customer. Before the break, what I said was that I knew that you had spent a lot of time looking at not only the number crunching of how do we get to what is the lifetime value, but more importantly, how do we influence that number? How do we increase that number? I know that you have three core pillars that actually, if we pull on those levers, we can increase the value of that lifetime value of a customer. So what are the pillars? And then let’s talk about how we can influence those.

Speaker 3:

Of course. The three pillars of customer value optimization are this one. First of all is what you sell, then is what you do, and then is what you say, and that’s the order of operations. So what you sell is, of course, the products or services that you’re putting out there. And in order to influence that, you need to validate with the customers to get the feedback if what you’re selling is good enough. So basically, of course, the customers are voting with their wallets, but if you have more clients, let’s say if you’re in a B2C or a B2B which has a lot of customers, then you can do the customer feedback. You can get things like the net promoter score, you can understand how satisfied they are with this type of product or the other one, and you can understand, with the customer experience component, where to focus next because you can get trapped into improving the wrong pillar.

So first is what you sell, then is what you do, what kind of customer experience are you delivering, and then is what you say. Meaning what kind of marketing, what kind of promise you are putting down there. And with this type of customer research, which is in the second pillar, you get to a point where you understand that maybe you should be focusing on better quality products because the main reasons that the customer make the churn is the fact that the products are not good enough. No amount of marketing is going to fix a broken product, which means you have to fix that. If your NPS is, let’s say, beyond 80, so above 80, that’s great.

If it’s not that, so it’s, let’s say, 50 or 60, you should be diving into their answers and understand, “You know what? I have a problem with this part. Maybe I’m setting the wrong expectations or maybe I’m not helping the customers use the product or make use of the services that I’m selling properly.” As you can see here, Drew, these are the free pillars and in order to influence them, it all boils down to extracting the quantitative data, looking at who are your best customers, what kind of products they’re buying, what makes them come back to buy again, and also qualitative data like what they are actually saying. So with this type of approach is way more simple. Of course, there is a way more in-depth methodology, but in a nutshell, that’s how it looks.

Speaker 2:

I think most agencies do a pretty good job of having a handle on the marketing pillar. We are helping clients really craft the message around their product or service and maybe agencies are spending some time on the customer experience. So I want to drill into that, but I don’t think a lot of agencies stick their nose in the quality of a product or service. Have you seen agencies successfully infuse themselves into those kind of conversations? And how do they do that? What is the basis of that conversation?

Speaker 3:

Yeah, that’s a great topic. And to be honest, I think, Drew, that we are doing things the opposite way. We are not beginning with the end in mind. As a marketing agency, you have to know that your client is selling at least good enough products because if your client is selling suboptimal products, again, fixing his marketing is not going to make his customers come back. If their business model is relying on repeat business, repeat customer that come back to buy again, then you can’t fix the promise. Marketing, at the end of the day, is the packaging, what you are saying around the product, but if you are selling the product which is not doing the job, what can you do about it? If you are a data-driven marketing agency and you are starting with the new client, first part of it, and that’s what we do, we are auditing the products that they are selling.

So we are looking at things like, “What’s your NPS? What are the main issues that your clients are facing?” Because when you ask these kind of questions, the founders or the decision-makers, maybe they have the answers and that’s great, but most of them, they don’t have the answers and that’s your first task because marketing is not only advertising. It’s also market research. It’s also customer research. The advertising is just a part of marketing. Unfortunately, many performance or marketing agencies are about spending money and it’s easy to spend money. You just put your card details on Facebook and tomorrow you don’t have any money left over there.

Speaker 2:

Right, right, right. I think in this era of clients wanting results today, helping a client understand that they have to spend money to do research to get the data they need so they spend the money in the right place in the right way is challenging.

Speaker 3:

Yeah, it’s almost mission impossible.

Speaker 2:

So if our part of our job, which I don’t disagree with, if part of our job is to really understand how the quality of the product and the marketplace’s perception of the product, how do we have those conversations with clients to get them to agree that we have to spend the money to learn that before we spend the money on lead acquisition or things like that, which may or may not work if we’re saying the wrong thing to the wrong people?

Speaker 3:

You’ve nailed it, Drew, to be honest, because that’s the main challenge, because we are now facing a lack of trust from the decision-makers in a low demand market, and what we are selling needs to be, let’s say, fantastic and instantly because they are impatient. Again, the best insights that I have around this and how we are doing is around doing this type of initial audit by looking at the dominant numbers of growth for their eCommerce or for their company or for their business model. We throw some data at them on our own expense. We do this type of no strings attached free audits to understand the growth formula for your business model. For instance, we get data from their web analytics, from their customer analytics, we forecast where the company will be according to the last two years of data, and we do this type of forecast and we show if you don’t do anything about, it in three months from now according to this forecast, which is, by the way, validated because last year it has a deviance of only 5% based on your actual data.

So we’ve got the two years ago data and we validate it with the forecast and it was only 5% difference between the actual data that you had. So we did this for this year, and if you don’t do anything, you will be losing X money or you will be making only this type of revenue. Now, what we can do in order to improve this is to analyze why have you lost, I don’t know, 600 customers last year, or why are you losing $850,000 this year on those customers? And in order to find this, guess what? We need the research part. We need to have the answers to these questions before fixing that. If you trust us as your doctor, let us do your x-ray. Don’t jump into fixing the broken bone because we might cast the wrong foot for you.

Speaker 2:

Right. Again, you’re saying that you’re doing this free audit, so you are set up to do that because you have all the data collection and all of that. How are you seeing agencies who don’t have all that in-house? First of all, if I offer that free audit or that free service, I’m crushing my profit margin by spending a lot of time on a client that hasn’t signed the deal or hasn’t agreed to whatever. Number two, I don’t have somebody in-house who actually can get me to that insight and intelligence. So how are agencies scratching that itch if they need to?

Speaker 3:

Well, I’ve launched this CBO Academy. We are training agencies to do this. We give them the instruments. It’s not rocket science and for us, it takes something like two and a half hours. So basically, am I spending $800 for a lead, a qualified lead, and my average lifetime value is, let’s say, $20,000 per year? Does it work to invest two and a half hours to improve my close rate, or am I trying the old way with no data, with no forecast, with no impact calculator? So basically, it’s a part of the work that you have to do in order to close those deals because we’ve seen our own close rate. And I’ll be totally honest with you. Imagine that two years ago our close rate was 45%. Basically, from 100 opportunities, we’ve closed 35. Last year, we’ve got 25. This year is only 16. So basically, it’s half than what it used to be, and why is that? Because the propensity to buy is not there anymore. What we’ve discovered is that we have to team up with the doctors. We are selling the technology, all these analysis, all these kind of things.

We sell the methodology, but when we are teaming up with an agency and we are doing this program of certifying agencies to be CVO-driven agencies, our close rate is now 40%. So basically, we had an even better close rate than ever before because what our customers are all about is a solution, it’s an end solution. They don’t want just the mustard from the sandwich, like Bob Moesta used to say, the fantastic book Demand Side Sales. When you’re selling something, you are selling just the mustard, not the whole sandwich and that’s why our own approach is, “Hey, we’ll give you the data. We’ll give you even the leads we have.” Right now we have around 3000 companies sharing data with us because they are looking for solutions, but we can’t serve all of them. As I said, we work only with big companies and agencies willing to serve the clients. And that’s how you scratch that itch.

Speaker 2:

Okay. Let’s look at the second pillar for a second. The customer experience. How are agencies digging into that and improving the customer experience, which, in theory, elongates the customer relationship and increases the lifetime value of that customer?

Speaker 3:

It is like a Trojan horse if you are familiar with the story of the Trojan horse. As part of our initial audit, let’s say, we also ask the clients to do the net promoter score. If they don’t do it, we give them our technology, we start to collect the data, and then we find out which are the main issues. Then once we know which are the main issues, we have these automations going on. If the company’s, let’s say, B2C because there is working way more easier, if the company is B2C or it’s a B2B with many clients with the low ACV, then we are putting on autopilot a response based on the rating of the NPS because that’s what our technology is doing. We collect the NPS. If you have a detractor, we automatically put a ticket on their customer support team.

So basically, it is not going to be our job or the marketing’s job to fix an issue because this is a customer support issue, and that means they are preventing churn before it happens because they are not only collecting feedback, but they have a service level agreement and we have a B2B company which grew their NPS to 93. So they’ve started with 58, now they are at 93 because they look at the main issues, they respond in real time and they give extra priority to the customers that are the best ones, so the ones with the highest lifetime valve, because if you are an important customer, Mr Customer, we have only five minutes to respond to you. And that’s how you do it. You basically turn the customer support team from a reactive department to a proactive department and from a cost center to a profit center.

Speaker 2:

All of this requires that clients A, have the data, but B, they have the team to do that. If you don’t have a customer support team, so again, if you are a smaller company now, somebody’s got to own that relationship in a different way, whether it’s the sales team or the customer support team or the people on the sales floor or whatever it is. But what I’m hearing you say, it starts by collecting the data and figuring out what’s making people happy or unhappy, and again, magnifying what makes them happy and fixing the problems that are… So intellectually you get it, but it still always starts with having the data.

Speaker 3:

Yeah, exactly. And you’ve said something very important, Drew, which is if you don’t have a customer support team, that means you have to do an investment and that investment maybe is not affordable because you’re struggling with a lot of things, but the cost of losing customers is way too high because everyone knows these statistics about how expensive it’s to acquire customers and to keep a customer. And there are also solutions, especially for the US companies. There are a lot of solutions. We have a client which outsources completely their customer support to the Philippines where the wages are, guess what, 11 times lower than in the US. So you can hire 11 people instead of only one in the US. You can do this type of tweaks initially to just validate if this is working. My perception is that we have to be way more agile when we experiment with the data.

And another thing that they could be doing is to leverage the RPA or robotic process automations plus the AI. So you can do this type of ChatGPT-driven prompts when the customer is telling you, “Hey, my order was not complete,” and you’ve done this, that, and the other, and you can have a tailor-made approach with a prompt with no human intervention that is the first in line to respond. And that gives the perception that, “Wow! This company is really proactive. They’ve pissed me off, but someone actually responded.” And then an actual person can get it three, four hours afterwards. So you don’t have to over-deliver like you used to. You have the technology at your fingertips right now, but, of course, that needs to embrace this technology and not to be trapped in the old business model because the game is changing dramatically in nowadays and we have to move faster and to leverage the technologies that we have at our disposal.

Speaker 2:

But again, if there is a sentence, I think, that is thematic through our conversation, it is, “You have to ask for the data, otherwise you don’t know.” That’s really at the end of the day, whether it’s the value of a customer, whether the product needs improvement, whether it is what the customer experience is like, all of those require that you have input to measure that, otherwise you are operating blind.

Speaker 3:

That’s right. That’s the mantra. Without the data, you are operating blind.

Speaker 2:

So one last question. Tell folks a little bit more about the academy, because I’m sure a lot of ears perked up when you said that you’re helping agencies learn how to do this. So tell us a little more about how that works.

Speaker 3:

We’ve launched this back in 2021. We have around 1,200 students already and we are certifying people around the concepts of customer value optimization. This is being made especially for agencies. Initially, we thought that the client side people will get it, but eight out of 10 students are agency owners, agency leaders, or professionals within the agencies and what we are doing there, we’ve gathered eight fantastic heavy hitters in this space on customer experience, on email marketing, on ads, on things like jobs to be done in customer research from Bob Moesta, which is the author of Demand Side Sales, and the pioneer of the jobs to be done method, which they transformed my life. This method changed the way I’m thinking about market.

So we’ve gathered there these people and we, of course, have a free course, and for the ones that are willing to do the full course, there are around 20 hours of content. I know that it seems like a lot, but you can see the testimonials there. We have agencies that added £700,000 in new business in six months after they’ve embraced this new thing because the demand is there, is just that the brief is changed and that’s how it works. So you can go to cvoacademy.com and I’m also teaching these kind of things. This book is going to be launched on the 20th of September, The CLV Revolution. You can read the first chapter on theclvrevolution.com.

Speaker 2:

But you also said there are some tools at the academy. So tell us a little bit about the tools.

Speaker 3:

After this more than 20 years in the business entrepreneurial arena, I’ve developed some tools around how to analyze the customer base, how to segment your customers, and all of those are in there, are in the academy. These are some Advanced Google sheets that you can get. You copy on your place, on your computer, you play with them, and then you get your answers. Basically, it’s a way to close new deals and of course, to serve your clients better.

Speaker 2:

This has been fascinating. I appreciate you coming out on the show and talking about all this. I will for sure put the CVO Academy in the show notes, but if folks have questions for you, what’s the best way for them to reach you?

Speaker 3:

I’m a LinkedIn person, so you can find me on LinkedIn. You can write me on LinkedIn. I’m always responding, not in the same day, but basically, I’m posting every day. I have a weekly newsletter about these things, and by all means, I grew… And again, I’m an export kid from Bucharest, Romania, Drew. I’ve been doing this by constantly experimenting and asking smart people about how you could do this, how we can do the others. So now I’m at this moment in my life which I’m willing to contribute, but unfortunately, many companies, many founders, and agency leaders are struggling without asking. They want to make it on their own. And I’m glad that you have this show here that you’re educating. It’s also part of my own mission, and I think it’s all about contributing and about sharing the knowledge and the shortcuts that we found on the path so far.

Speaker 2:

Yeah, that is the AMI way, that we can get smarter faster if we get smarter together. Absolutely. Yep. Yeah, I’m grateful that you took the time to be on the show today. Thank you so much for joining us and for sharing your expertise and for building the academy, and we’re looking forward to reading the book when it comes out this fall. So thank you so much for your time today.

Speaker 3:

Thanks as well, Drew, and thanks everyone for listening.

Speaker 2:

All right, so this wraps up a really great episode. And again, as you continue to try and figure out how to have different kinds of conversations with your clients, conversations where you demonstrate your expertise, where you demonstrate your commitment to their success, where you are paying attention to the KPIs so that you can define success metrics with your clients before you start a project so you both agree what success looks like and then you can deliver against that success, I think a lot of the things we talked about today can play into that. And so this is another great episode where there’s action to be taken. I know by the time this airs this summer, it’ll be a few months before the book’s out, but you can go read the first chapter for sure, and you can go check out at least the free course at the CVO Academy and try and figure out how you can leverage this idea of understanding and helping your clients understand.

In 2023, one of the things that we’re talking a lot about with agencies is that the sales cycle has slowed down. For all of you, it is elongated. It’s harder and harder to make a sale. And for our clients, they’re having the exact same thing, which means for all of us, there is more value to be had and more value to be found in our existing clients. We’ve got to get more work out of our existing clients. We have to help our clients keep and get more work out of their existing customers. And so this idea of strengthening these three pillars so that you increase the lifetime value of a customer, both in terms of their longevity and their spend, becomes really a relevant conversation for you to have with your clients. So go and learn a little more about this. Go and have those conversations. Be a better partner to your clients by caring about what they care about and teaching them what a lifetime value calculation means to them and how improving that lifetime value adds dollars to the bottom line for them.

If you can do that, you have a client for a long time, so do not be passive with this information. Put it into play, all right? As always, a huge shout-out and thank you to our friends at White Label IQ. They do white label design, dev and PPC for agencies. And as you know, they are born from an agency so they understand how to price what they do in a way that you can be profitable as well. Great folks. Have known them for, gosh, decades. Good [inaudible 00:55:05] people, very talented in terms of their skillsets. Head over to whitelabeliq.com/ami and they got a special deal there for you, some free hours on your first project. So check that out. And I will be back next week with another guest to get you thinking a little differently about the business. I think Valentin said it exactly right: the business is changing. We have to change the way we approach the business, and I think you got some really great tools today to do that. I’ll be back and hopefully we’ll do it again next week and give you some new tools. In the meantime, you know how to track me down if you need me. I’m [email protected], the longest email address on the planet, and in the meantime, thanks for listening. I’m grateful for you and I will talk to you soon.

Speaker 1:

That’s all for this episode of AMI’s Build a Better Agency podcast. Be sure to visit agencymanagementinstitute.com to learn more about our workshops, online courses, and other ways we serve small to mid-size agencies. Don’t forget to subscribe today so you don’t miss an episode.