Re: Evaluating customer's lifetime value

From: Jim Novo <jimnovo_at_sprintmail.com>
Date: Tue 11 Apr 2000 16:12:28 -0400

LARRY RAUBACH WROTE:
> When one determines lifetime value, should some form of
> subjective, or otherwise, figure be also used to
> reflect the spin-off benefits a company will likely
> realize due to this "lifetime customer" speaking highly
> of the company to family, friends and associates over
> the years?

Determining LTV is as much a corporate exercise as a
mathematical one.

When derived, the number should be a benchmark widely
used across the company for ROI work in merchandising,
advertising, customer service, and so forth. This is
why you want to take into account the biz model and
general corporate accounting procedures, which will
differ from biz to biz.

So you can include "pass-a-long" sales if you want, as
long as everybody understands what the LTV means and it
seems right for your company to look at it in this way.

A bit of caution though. The easiest LTV to understand
and manage is based on a single customer, because it
can be easily calculated at any time by looking at a
single customer record, for any application. You can
calculate it and store it in the customer record every
day if you want very easily.

If you create some kind of "hybrid" LTV for a special
situation, now you have multiple LTV calc's floating
around the company.

I'd be more likely to recognize internally this
pass-a-long effect happens, * outside of the LTV calc
*, and take it into account when approaching specific
situations or programs. This keeps your "benchmark
LTV" a pure number useful in a variety of contexts.

For example, looking at how much you can spend to
acquire a customer, you would acknowledge pass-a-long
and add some weighting for those customers. This
doesn't change LTV, but boosts what you can spend per
customer. If there are 3 "passes", then breakeven
acquisition cost = 3 x LTV.

I'd keep LTV as a "pure", single customer based metric
and modify the use of it for certain applications as
need be. Then you won't have to explain "which LTV" you
used for any particular analysis.

Jim Novo
Marketing Mercenary
jimnovo_at_sprintmail.com




Received on Tue Apr 11 2000 - 15:12:28 CDT