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Measuring Marketing Value: Lifetime Value (LTV)

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Page 1: How to Measure and Use Lifetime Value and Customer Acquisition Cost

Measuring Marketing Value: Lifetime Value (LTV)

Page 2: How to Measure and Use Lifetime Value and Customer Acquisition Cost
Page 3: How to Measure and Use Lifetime Value and Customer Acquisition Cost

ME

=

Page 4: How to Measure and Use Lifetime Value and Customer Acquisition Cost

4

Lifetime Value (LTV)

Customer Acquisition Cost (CAC)

Page 5: How to Measure and Use Lifetime Value and Customer Acquisition Cost

5

TODAY

THEORY PRACTICE

Page 6: How to Measure and Use Lifetime Value and Customer Acquisition Cost

6

MY JOURNEY WITH LTV-CAC

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7

CAVEATS

We want to be great marketers (growers)

How to lead, even when not in leadership

Data is important

Our context

Page 8: How to Measure and Use Lifetime Value and Customer Acquisition Cost

8

HOW DO WE GROW?

Page 9: How to Measure and Use Lifetime Value and Customer Acquisition Cost

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HOW DO WE GROW?

GET NEW ONES

KEEP CURRENT ONES

1

2

Page 10: How to Measure and Use Lifetime Value and Customer Acquisition Cost

10

HOW DO WE GROW?

GET NEW ONES

KEEP CURRENT ONES

1

2

LTV HELPS WITH BOTH

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5x-9x more costly to acquire new customer vs. retain existing

Page 12: How to Measure and Use Lifetime Value and Customer Acquisition Cost

12SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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13

It takes 12 positive interactions to make up for one unresolved negative experience

=

SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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14

9%

70%

91% of unhappy customers will not willingly do business with

you again.

Resolve a complaint in the customer's favor and they will do

business with you again 70% of the

time.

START

SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

Page 15: How to Measure and Use Lifetime Value and Customer Acquisition Cost

15

Americans tell an average of 9 people about good experiences, and tell 16 people about poor experiences.

vs.

SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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16

Page 17: How to Measure and Use Lifetime Value and Customer Acquisition Cost

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Lifetime Value (LTV)

• What’s the value that this customer brings?

• Long-term view of customers

• “Average deal size” if one-time

• How can companies with inexpensive products justify big marketing budgets?

Page 18: How to Measure and Use Lifetime Value and Customer Acquisition Cost

https://blog.kissmetrics.com/how-to-calculate-lifetime-value/

Page 19: How to Measure and Use Lifetime Value and Customer Acquisition Cost

SOURCE: https://blog.kissmetrics.com/how-to-calculate-lifetime-value/

Page 20: How to Measure and Use Lifetime Value and Customer Acquisition Cost

20

Lifetime Value (LTV)

• Simple LTV = Total revenue from client

• Traditional LTV = (Avg. gross margin) x (Customer retention rate / (1 + Discount rate - Customer retention rate)

Page 21: How to Measure and Use Lifetime Value and Customer Acquisition Cost

21

Lifetime Value (LTV)

• Simple LTV = Total revenue from client

• Traditional LTV = (Avg. gross margin) x (Customer retention rate / (1 + Discount rate - Customer retention rate)• Gross margin not revenue• Churn matters• “Bird in the hand is worth two in the bush”

REVENUE+

MARGINAL

PROFIT +

REALISTIC

Page 22: How to Measure and Use Lifetime Value and Customer Acquisition Cost

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Customer Acquisition Cost (CAC)

• (Sales + Marketing + hard costs) / number of deals acquired

• Does *not* factor in overhead, delivery, support (operating expenses)

Page 23: How to Measure and Use Lifetime Value and Customer Acquisition Cost

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The Magic Formula – LTV:CAC

EXAMPLE

LTV = $25,000

CAC = $6,000

LTV:CAC = 4.2

Page 24: How to Measure and Use Lifetime Value and Customer Acquisition Cost

24

The Magic Formula

3 : 1 healthy

5+ : 1 leaving $ on the table

1:1 spending too much

Recover CAC in 12 months

Page 25: How to Measure and Use Lifetime Value and Customer Acquisition Cost

25

WHAT NOW?

Page 26: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering

1) Know Thy Magic Formula

Page 27: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering• target market / vertical

1) Know Thy Magic Formula

Page 28: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering• target market / vertical• acquisition channel

1) Know Thy Magic Formula

Page 29: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering• target market / vertical• acquisition channel• sales person

1) Know Thy Magic Formula

Page 30: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering• target market / vertical• acquisition channel• sales person• account manager

1) Know Thy Magic Formula

Page 31: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering• target market / vertical• acquisition channel• sales person• account manager• marketing campaign

1) Know Thy Magic Formula

Page 32: How to Measure and Use Lifetime Value and Customer Acquisition Cost

By: • product offering• target market / vertical• acquisition channel• sales person• account manager• marketing campaign• buyer persona

1) Know Thy Magic Formula

Page 33: How to Measure and Use Lifetime Value and Customer Acquisition Cost

Win the games you need to win Focus on retention strategies Thoughtful upsell

2) Increase LTV over time

Page 34: How to Measure and Use Lifetime Value and Customer Acquisition Cost

+ Channel+ Strategic Partnerships+ Expectation setting early+ Online Self-service + Surprise and delight

- Low Customer Satisfaction- High Churn Rates

2) Increase LTV over time

Page 35: How to Measure and Use Lifetime Value and Customer Acquisition Cost

Know how to decrease CAC Get close to 5:1 Invest

3) Trampoline your ratio

Page 36: How to Measure and Use Lifetime Value and Customer Acquisition Cost

3) Trampoline your ratio

Know how to decrease CAC Get close to 5:1 Invest

5:1

1:1

OPTIM

IZE >

Page 37: How to Measure and Use Lifetime Value and Customer Acquisition Cost

3) Trampoline your ratio

5:1

1:1

SOW > REAP

>

OPTIM

IZE >

Know how to decrease CAC Get close to 5:1 Invest

Page 38: How to Measure and Use Lifetime Value and Customer Acquisition Cost

3) Trampoline your ratio

5:1

1:1

SOW > REAP

>

OPTIM

IZE >

Know how to decrease CAC Get close to 5:1 Invest

GROWTH

Page 39: How to Measure and Use Lifetime Value and Customer Acquisition Cost

4) Grow!

THE CUBE MODEL

GET NEW ONES1

Page 40: How to Measure and Use Lifetime Value and Customer Acquisition Cost

40

CAC

LTV

1) Add more blocks with healthy unit economics

Page 41: How to Measure and Use Lifetime Value and Customer Acquisition Cost

1) Add more blocks with healthy unit economics2) In a market with lots of blocks

Page 42: How to Measure and Use Lifetime Value and Customer Acquisition Cost

4) Combine CAC with sales metrics to reverse-engineer marketing budgets

CAC = $6,000Close rate = 33%

Qualified leads = $2,000 each Qualification rate = 20%

Cost per lead = $400Web conversion rate = 5%

Web traffic = $20/visitor

What channels, strategies, content can drive leads for $400/each? $20 web visitors?

Page 43: How to Measure and Use Lifetime Value and Customer Acquisition Cost

5) Sales forecasting / quotas

CAC = $6,000

Sales Salary = $6,000

=Close one deal per month

LTV:CAC Ratio = 5:1They ask: “Can we do XYZ?” Because ratio is healthy: clear YES!

Page 44: How to Measure and Use Lifetime Value and Customer Acquisition Cost

6) Team forecasting

Pipeline = 4 new customers LTV = $25k

Total new value = $100k

? Staffing? Support ? Overhead/infrastructure

Page 45: How to Measure and Use Lifetime Value and Customer Acquisition Cost

7) Find more of the right clients

MY VAMPIRE MATRIX

Page 46: How to Measure and Use Lifetime Value and Customer Acquisition Cost

KNOW THY MAGIC

FORMULA

Page 47: How to Measure and Use Lifetime Value and Customer Acquisition Cost

[email protected]

/in/jessemarble

/jessemarble


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