Everyone agrees that knowing the Lifetime Value (LTV) of your product or service is important, but there hasn’t been enough discussion on the many ways you can use LTV to improve your business.
Like Applied Math, LTV is just a number until you apply it to your marketing decisions.
This is the second installment of our 3-part series on LTV. If you haven’t read Part 1 click here. As a reminder, the definition of LTV is:
LTV is what a customer is worth, outside the cost to acquire them.
Customer Lifetime Value (LTV) can be applied in both subscription and one-shot businesses.
Since there are endless ways you can apply LTV to decision making, we are focusing on our three favorite areas.
1) Media Allowables
How can LTV help with your media plans?
With analysis you can use your LTV to set CPO Allowables. That’s how much you should spend per acquisition while still staying within your budget limits based on the value of that consumer.
Tracking your spend targets versus LTV will reveal whether you are spending too much or too little to acquire new customers. Spend too much and you eat into your profit. Too little and you miss out on potential sales.
2) Customer Cohorts
Through LTV, you can compare the value of each customer based on their profile - what Product/Service they purchased, what was the Source of their order, and what Offer brought them to purchase.
Analyzing the LTV of these different clusters of customers can lead to strategic improvements in Product, Price, Churn, Conversion, and more.
Link this data up with your marketing objectives to develop a marketing plan. For example, if your #1 objective is member file growth, then invest in the cohort that drove the most conversions which reach a minimum profit goal. If profitability is your main objective, then focus on the customer cohorts which have the highest profit.
3) Marketing Costs
Since LTV considers your variable costs you can see how COGS, Customer Service, Fulfillment, and Shipping impact your LTV.
Regularly reviewing LTV data helps identify cost trends and can raise opportunities to be more efficient versus industry standard costs.
If you don’t have an LTV, or if you’re unsure that your current LTV is accurate, don’t be afraid to ask for outside help. Directade provides marketing leaders with LTV models and analysis so they can be confident in their decision making. Contact us to see how we can help your organization.