Optics For A Five-Year Plan

Looking for future success, newspapers learn about customer lifetime value (CLTV)

By David Cohea

Recently, publishers, editors and ad directors got together to roll up their sleeves, take a hard look at the moment and discuss solutions that can guide community newspapers to profitability.

Titled “From Disruption to Transformation: New Strategies for Prosperity in a Digital Age,” the conference was a collaboration of the Southern Newspaper Publishers Association’s Traveling Campus and the University of North Carolina’s School of Journalism and Mass Communication.

Led by Penelope Abernathy, author of Saving Community Journalism, the three-day conference expanded on ideas from the book for reducing legacy costs, building communities online and identifying new opportunities for revenue.

Also participating in the event was John Clark, executive director of Reese News Lab; Steve Gray, director of strategy and innovation, Morris Publishing Group; Raju Narisetti, senior vice president of strategy, News Corp.; Tom Rosensteil, executive director, American Press Institute, JoAnn Sciarrino, Knight Chair of digital advertising and marketing, UNC School of Journalism and Mass Communication; and Ryan Thornburg, associate professor, also of UNC’s School of Journalism and Mass Communication.

In her opening remarks, Abernathy reiterated the book’s main points: Current readers remain loyal, but their habits are changing very quickly. Advertisers are confused and searching, and want the newspaper to assist them. Disruptive innovations from outside the local community are leveling lethal blows to cost structure, customer base and revenues.

To respond to these challenges, newspapers must do three things:

• Where technology has destroyed cost barriers for competition, legacy costs related to the print era have to be dramatically reduced. However, publishers can’t can’t cost-cut their way to long-term sustainability; they must instead try to skate to where they think the puck will be five years from now.
• Where readers have been siphoned off, community (or communities) must be rebuilt across multiple platforms. (And the future is mobile.)
• Where advertising has been decimated, new revenue opportunities need to be aggressively pursued. Ad sales reps need to become digital experts.

Therefore, one-two punch is necessary for survival: Cut legacy costs and increase revenue, both by 6 percent a year, with a net 30 percent reduction and gain over five years.

The goal of the conference was the help newspapers envision what they should look like in five years — to customers, employees and shareholders alike. What are the qualities of the excellence that will enable them to succeed?

The conference launched out from there with editorial challenges and solutions on the first day and revenue opportunities on the second. On the third day, attendees participated in “lightning-round” presentations about their newspaper’s major business challenges, receiving feedback from panelists.

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One of the hot topics of discussion on the second day was the metric of customer lifetime value (CLTV), which asks: How much is a reader worth?

In a session led by Abernathy and Sciarrino, editors tasked with re-investing savings from shedding legacy costs in new communities across multiple platforms and pursuing fresh revenues were given the right metric for a five-year plan.

Loyal customers buy more, sell more, pay more and cost less — that’s always been a given. But with so many customers entering the newspaper’s ecosystem now at so many different places, how to determine their commensurate value over time?

“The decision that publishers face is trying to decide where to put the investment that will yield them the greatest returns,” says Sciarrino.

In the past, the cost of acquisitions were evaluated using the return on investment calculation (ROI) with revenue predominantly tied to print. Until recently, there wasn’t much point in comparing “print dollars and digital cents.”

But with mobile consumption surging at light-speeds, all that is changing quickly. A more flexible metric is needed. The Customer Lifetime Value (CLTV) calculation takes a different approach, accounting for reader loyalty and engagement over time and recognizing varying costs for acquiring and servicing audiences.

In the digital realm, the mantra for new products is fail fast — a constant process of launching and testing and taking down and launching again. The CLTV measurement is perfect for this, since it can be applied on every set of customers, asking what investment is appropriate for a magazine, or a newspaper, for digital with paywall or digital without. CLTV also creates a LOT of data — critical for online ventures and of great value to publishers as they continue to grow online.

All should be calculated for CLTV, assessing how much it costs to acquire them at the top of the funnel and how much they deliver at the result.

I asked Sciarrino whether smaller papers can generate enough data to come up with meaningful results.

“It’s not so much the amount of data as the variation,” she replied. “You have to know how to interpret the swings.”

When asked how many community publishers at the conference said they were now using the CLTV calculation, Sciarrino said she was surprised to find out that none were currently using or calculating CLTV. Several publishers did say they were planning to start using CLTV with nuances suited to their own environment as a result of the conference.

How can to get started? There’s an excellent CLTV website maintained by Geoff Friff The calculation is explained at great length, and there are downloadable excel templates and calculators there.

For a more newspaper-specific model, Sciarrino said she can provide worksheets that are newspaper-specific to interested publishers. (Message me at dcohea@hearstsc.com and I can give you her contact information.)

“First and most important, get the data,” she says. “Know your numbers! Get used to plugging them in.”

Sciarrino said that as far as she can tell, local businesses are not using CLTV either, and this may provide an immense opportunity for local newspapers to help and advise them on how to put this valuable tool to work.

The CLTV calculation requires a good amount of mental elbow grease (there is a simple version of it for making quick calculations), but it’s the best way to forecast and monitor long-term profitability. CLTV measures customer profitability over the total time that the customer deals with the firm. If you’re trying to look down the road five years, CLTV offers the clearest line of sight.

Sciarrino said she and Abernathy believe that many small newspapers will begin adapting the CLTV workbook for their businesses, especially once they begin to experience the benefit of having optics designed to guide five year planning.

David Cohea is general manager of King Features Weekly Service, an editorial service for 700 weekly newspapers.