Stop! You’re Doing Lifetime Value Wrong!

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linkedin.comI often get asked questions like “is my LTV good?”, “what are good unit economics?”, or “how does my payback look?”. The honest answer is that it really depends. It’s difficult to view LTV and customer acquisition metrics in a vacuum. The reality is that you have took look at businesses holistically and benchmark key metrics against comparable companies whenever possible. First, some definitions:

Retention

Cohort retention is basically the number of customers retained in any given cohort. While most SaaS businesses tend to have fairly linear retention curves (depending on their pricing model) with a small amount of churn each month (figure 1), consumer businesses can be quite erratic (figure 2). Using a consumer subscription company as an example, you might see a huge initial dropoff in a cohort of customers, followed by steady churn over time that quickly levels out. Retention curves for earlier cohorts may also perform very differently from later cohorts as the product or service changes (figure 3), or as different types of customers are acquired.

Read more about how to better understand customer lifetime value at linkedin.com

 

photo CC by thecrazyfilmgirl

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