I’m elbows-deep in an optimization project, helping the client track churn, retention, ARPU and LTV. Forbes online published this article warning about the dangers of relying on LTV; I agree with much of it. The headline was misleading, but the article was quite good. LTV is a tool, not a substitute for strategy.
LTV forces you to think about retention and upsell. Many companies have no idea what their retention is by channel. They invest in PPC and affiliate programs, focus on the cash generated, and fail to look at downstream revenue or churn. LTV is a useful rough guide; it’s an estimate produced by an unweighted average of averages. Although it’s a good starting point, companies should measure revenue per customer directly, segmented by customer type, marketing channel, and product. To the extent that the future looks like the past, this information can be useful in helping to plan future investment.
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