Web Site Measurement Hacks

Measure Potential Customer Value Using Recency and Latency

The most powerful predictor of future purchases is the measurement of how recently the last purchase was made. Recency and latency are two very powerful metrics for predicting future customer behavior and business success.

As with current value, the repeat visit percentage of a segment is an OK predictor of potential value, but it’s kind of a blunt instrument. When you want to start really homing in on defection behavior and potential value, and taking specific action to increase profits, there are special metrics you should use.

Recency is a potential value metric commonly used for predicting customer defection in a business where the customer is in control, which probably includes all the free content and branding models, most commerce models, and some self-service models. A special form of recency called latency is often used in businesses where orders and contacts have a defined “cycle,” including those with a defined sales process, subscription-based businesses, and for businesses selling durable goods or high-ticket items. This would include many of the lead-generation and paid subscription content models, as well as some commerce models. We’re going to look at both of these retention metrics and how you can use them to rank the likelihood of visitor segments to defect.

Recency

Let’s say I offer you a bet. I want you to choose from two customers the one most likely to continue purchasing in the future. The customers ...