Welcome to The Repeat Saturday email. We’re glad to have you. If this was shared with you, consider subscribing.
We’ve been in a few conversations recently where the concept of customer lifetime value (or LTV) has come up—usually in the context of subscription.
In these conversations, subscription is often discussed as a vehicle for compressing the time to LTV or maximizing LTV. We don’t have this logged as a direct quote, but we heard in one of those conversations a line that went something like this: “If you can get the money faster, do it, right?”
Maybe.
For the sake of this newsletter, we’ll stipulate here that increasing purchase frequency is a sign of a healthy brand and a great product that customers find valuable. We’ll also stipulate there are a few products and brands (diapers come to mind) where the remainder of this newsletter doesn’t apply. That’s not what this is about.
What it is about, though, is a reliance on (some might say obsession with?) a metric that can be some combination of theoretical, unachievable and overly achievable. In that sense, LTV as a metric isn’t worth much.
LTV, by definition, is a guess. Who knows how much a customer is really worth over their lifetime? Or, for that matter, your brand’s lifetime?
Indulge us for a second on this:
If you create a great product, customer experience, and brand, you’ll continue to earn your customers’ repeat business until one of those variables changes—or a new product, customer experience or brand becomes easier for them to buy or becomes more interesting to them. There is no timeframe in which that will happen. Though a customer may use other brands alongside yours, the variables listed above are mostly in your control.
If you do those things?
Your theoretical value of a customer will likely be grossly underestimated.
And what if you don’t?
If your product isn’t great, if it isn’t easy to buy or the customer doesn’t have a great experience, you’re not as likely to earn much repeat business—at least not as much as the brand who does have those things. In that case, LTV assumptions are likely unachievable. And if you’ve built your business, or even acquisition cost targets, around those assumptions? That’s problematic.
One of these scenarios is preferable, but you might argue neither is great—not if you’re using LTV to drive assumptions.
Say, for instance, you’re a brand that fits the first scenario (of course you are, you’re reading this newsletter), and a subscriber churns month or two after they hit your LTV assumptions: Are you still considering them a customer? Are you running anything outside your traditional wingback campaign to them? Are you digging into why they churned?
The problem with an LTV assumption is that it suggests there’s a point at which a customer no longer needs to be valuable to a brand. An endpoint of sorts.
And if you have an offering that’s primarily focused on compressing the window in which that endpoint comes, and not investing past that point, it’s worth questioning whether you’re actually selling the brand short in the long run.