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  1. Johne50

    Im grateful for the blog article.Much thanks again. Cool.

    Reply
  2. Mark H

    Tommy,

    I’m a new fan. Another awesome post. However, I am once again challenged – this time, mathematically.

    I’m playing with a consumer lending/business financing setup and trying real hard to come up with a formula to go with for the CLV. Any ideas?

    Thanks!

    Reply
    1. Tommy Walker

      Hmm…without looking at the customer data, it’s kind of hard to say.

      Does starting with the basic formulas in here not work?

    2. Mark H

      Actually, after that comment of mine, I’ve gone and done a lot of those formulas and I think I’m getting somewhere.

      Let’s see how it goes, will keep ya’ll informed.

  3. Smithk452

    Hi there! Would you mind if I share your blog with my myspace group? There’s a lot of people that I think would really appreciate your content. Please let me know. Many thanks kbdcbdcagc

    Reply
  4. indra

    I know CAC but can you please provide real-life CAC values for startups and big companies.
    It’s almost impossible to find sample CACs that help you determine if you are doing things wrong or right.

    Reply
    1. Tommy Walker

      Trust me, I looked as hard as I could to find real world CAC values, but the truth is, they’re impossible to find because it’s one of the most valuable metrics to any business.

      Imagine for a second your competition got a hold of your CAC value… they’d just spend more to acquire your customers, even if it meant short-term loss.

      Really though, looking at someone else’s numbers to validate your own is sort of a losing exercise. There are so many circumstances that factor in, that you’re never really going to get the full picture.

      The best thing you could do is take the data that you have, and find a good person to process it (if you’re having a hard time processing it yourself, that is) so you & only you know what a customer is worth to your business.

      I wish I could give you something different, or provide you with a real world cost, but unfortunately I was not able to find any of that in my research for this piece.

  5. yassin

    oh boy oh boy oh boy :), here comes a new pipeline of optimization projects in my business.

    Thank you for this insightful and thorough post.

    Will visit this regularly over the months.

    Reply
  6. Marky

    Hey Tommy, fantastic article. Also slightly daunting. I’ve never been good with maths and I’ve focused on just creating cool products that people like, and then upselling even cooler products that people like even more. That’s working so far for me. But I’ve also realized with paid traffic I need to start taking my numbers a lot more seriously. There are so many things in this article I am NOT doing. But you have to start somewhere, right?

    Reply
  7. Tom Murdoch

    Great post; clear presentation of very good data. Provides a solid foundation for our PPC recommendations.

    Reply
  8. Dan Norris

    Wow great post Tommy. I put together a little calculator that we use to do a quick calculation for Customer Acquisition Cost you might find useful http://wpcurve.com/cpa-calculator

    We are looking at ways to boost LTV right now, this post is going to help us A LOT!

    So thank you.

    Reply
  9. Mark Pilipczuk

    Good article. Far too many marketers choose NOT to obsess over LTV and CAC and choose instead to spend time crafting offers or stunt marketing. I was taught early on that “First, you have to calculate.” (Said in a Swedish accent by one of my mentors.)

    I disagree with your assertion that you need a good CFO. Any good marketer worth his/her salt should be able to model this out without help from Finance, including taking into account the internal hurdle rate and time value of money. The math is quite simple (and Google-able nowadays).

    Reply
    1. Tommy Walker

      I agree, any good marketer should be able to calculate this no problem,

      I didn’t really unwrap my logic behind having a good CFO, but it goes far deeper than being able to do these basic calculations.

      Really, it’s about being able to run the numbers that also factor in the extra ancillary factors, like discounts or theft, or forecast worst case scenarios like a data breeches, negative press, power outages, planned & unplanned downtime etc.

      As a marketer, it’s great to build the budget based solely on LTV & CAC, but in some ways it’s too idyllic.

      Think back to when Amazon went down & it was estimated they lost 4.72 million in sales: http://venturebeat.com/2013/08/19/amazon-website-down/

      An event like this would dramatically impact the figures for CAC and LTV, so in order to insulate against events like that, they’re more likely working with a heavily modified equation somewhere within their multiple customer segments to make sure it everything balances out and the blow is softened.

  10. Jae Jun

    Perfect timing. I was searching and trying to get a better idea of my LTV yesterday.
    The one difficulty I’m having is that my members pay annually. So instead of a monthly churn, I do get some refund requests. How do you think I should be tracking churn and LTV?

    Reply
    1. Tommy Walker

      Dig into your metrics to see if there’s any correlations between login frequency and refund requests.

      My hunch is, you’ll find that infrequent log-ins also turn into refundees.

      To combat that, you could look into sending triggered emails when engagement dips down.

      In terms of churn, use the spreadsheet Steven provided & instead of tracking days, track months. That should be a good place to start.

  11. Robert

    One of most thorough articles on LTV I’ve read. Thanks.

    One of the most important reasons for increasing LTV for my clients isn’t just profitability. But if your LTV relative to your competitors is higher, you can out-invest them in customer acquisition.

    If company X has an LTV of $1000 and Company Z has a LTV of $2500, and they are both competing for the same PPC keywords – who wins?

    The higher the LTV, the crazier the things you can do on the front end. Stuff that may seem insane (and is) for your competitors.

    Reply
    1. Tommy Walker

      That’s a great point Robert, if your CLV is higher, you can own your competition across the board when it comes to acquisition.

      I wanted to mention T-Mobile’s current “buy out your contract” offer that they’ve got going on, because it seems like perfect example of this in action, but I just couldn’t find a way to work it in properly.

      One of the main things I thought was really cool about nailing these metrics was just how much you can put your competition on the ropes when it comes to sniping their customers.

      In the “buy out your contract example” the only counter AT&T might have to that is to start offering lower cost contracts or extra data to retain the customers who may end up leaving.

      This of course eats away at their own CLV & depending on how successful T-Mobile is, erodes their mobile business.

      Math wars. It’s nuts.

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How To Calculate & Increase Customer Lifetime Value