Customer Lifetime Value (LTV)

When you say Customer Lifetime Value (LTV) you are somehow talking about profits.

Customer Lifetime Value is one of the most important factors for your business sustainability. Therefore, understanding what the customer lifetime value is and how it impacts your business is a key point.

Here you can find all the deepenings you need when it comes to customer lifetime value.

Customer Lifetime Value (LTV) deepenings

How to calculate CAC: finally, the answer.
How to calculate CAC: finally, the answer.
How to calculate CAC of your online business is the question you never asked not to seem stupid. But you had to. It is damn worth.
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Startup financial metrics: the ones for the early days.
Startup financial metrics: the ones for the early days.
Startup financial metrics which really matter at the early days of your journey, from traction towards sustainable scalability.
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Bootstrapping e-commerce by design.
Bootstrapping e-commerce by design.
Bootstrapping e-commerce comes from the very beginning when you design how the business works. Here you find the main rule and some bonus tips.
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Economies of scale drive unit profits growth.
Economies of scale drive unit profits growth.
At day one you pay costs as entry player. Reaching economies of scale may be your secret weapon to boost profitability. How much your business benefits from the boost?
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LTV and CAC: build the right metric, please.
LTV and CAC: build the right metric, please.
LTV and CAC themselves don’t tell you much, they need to be combined in one metric. Defining such metric as LTV/CAC or LTV-CAC you’re investigating two different aspects of your business.
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CAC is misleading, compute the Full Customer Cost.
CAC is misleading, compute the Full Customer Cost.
You run your customer acquisition strategy and get new customers aiming at converting them to repeated purchases. This marketing seems coming for free, right? No!
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LTV - CAC is meaningful only with the related resilience.
LTV - CAC is meaningful only with the related resilience.
When we draw our Business Plan, much of the success is due to the correct estimation of the LTV over CAC. Making errors in this estimation may cause big damages. How big may the damage be?
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CAC payback period: the definitive guide.
CAC payback period: the definitive guide.
LTV greater than CAC is not enough. You should get the most in terms of CAC payback period to grow sustainably. Discover all you need to understand it.
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15
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Stripe vs. Paypal: the definitive profitability comparison.
Stripe vs. Paypal: the definitive profitability comparison.
In the fight of Stripe vs. Paypal, who’s making your business more profitable? Here you find the economics fully investigated.
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Business stage:
Manage

Customer Lifetime Value (LTV) back to basics

Back to basics, how can we define the Customer Lifetime Value?

Well, you can find online many creative ways to define it. I have my own practical view about.

The Customer Lifetime Value is the value that the customer generates to our business during his useful life.

Talking about the LTV is not a matter of getting the right formula or the online calculator. Is all about taking my definition above and translate it into business numbers.

First and most important, the term value. The value provided by the customer to our business is not expressed in terms of revenues.

The value is the total revenue from the customer minus all the variable direct costs and other non-variable direct costs.

Sounds tricky? Wait a second. I'll show you an example.

The customer, in the past 12 months, has bought from us the same pack of pencils for ten times at the price of €10 + VAT. The pack of pencils costs to us €4,5 + VAT. While the shipping box costs to us €0,5 + VAT.

The customer has hence generated €100 in revenues, but for each sale, the sale margin was €5. So, the Customer Lifetime Value is €50. That's all. Revenues minus direct variable costs. VAT should always be excluded.

If you want, you can also assign to the product sales some non-variable costs, like customer service. This much depends on you.

The eample is very simple, but it helps to understand the topic in brief.

What is the customer useful life? The customer useful life is a statical value, expressed in months, that tells how long the average customer may be willing to buy again after we acquired him.

The customer is willing to buy again from us if we give him any reason to do it, crystal clear.

The example was made considering the past customer orders. But what about estimating the total customer revenue in the business planning phase?

To estimate the total customer revenue, we can multiply the average product price by an estimated number of repeat purchases.

These figures may come from our historical data or we may assume them.

Finally, if we have a huge product/service offer with a wide range of price, we can compute different LTVs based on customer segments, each of them having a different average price.

The example was easy on purpose. When we have to apply the concept to our real business, we should find a way that fits it.