We’ve spent time in this space exploring the value of customer lifetime value and the gaps associated with it. But we haven’t, necessarily, offered an alternative.
That was a mistake.
It’s been on our minds the last few weeks, as our Director of Marketing, Alex McEachern, and our Director of Community, Kristen LaFrance, have been gearing up to launch our first podcast. The trailer is out, and you can listen/subscribe on Apple or Spotify. If you listen to the trailer, you’ll hear a line in there where Kristen calls the work of building a CPG brand a “long game.”
(Note: If you subscribe, you’ll be notified when the first episode drops.)
When we were listening to that trailer the first time, that line—the first line of the trailer—stuck in our head to the point that we missed the rest of what was said.
Yes, of course, this is true. In fact, it is true of many new ventures, irrespective of what product is being sold.
Often, though, we lose sight of the long game, even when we think we’re oriented to it. LTV is, perhaps, the best example of this.
As we wrote in April, LTV is a metric that “can be some combination of theoretical, unachievable and overly achievable.”
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.
So, what’s the alternative?
The alternative to truly building for the long game is to maximize the short term. And one of the metrics to deliver that is payback period.
The faster you can recover your acquisition costs, for example, the faster you’re freed to build the products and orient your brand in the fashion you believe best optimizes you for the long run.
That freedom opens up significant opportunities, but it can also force creativity.
Payback period too high? How do you drive down your CAC outside of increasingly expensive acquisition channels? How do you pull a customer’s next purchase forward by a week? How do you increase the amount a newly acquired customer buys from you?
There are, to be sure, downsides to orienting acquisition around payback period. If taken to the fullest, it may create more short-term thinking within a business and detract from the long game.
But, if you balance it correctly, it frees you to go bigger and plan for longer time horizons. If your bet on the long Hagen is right, your CAC will go down (or at least not rise as quickly as others), and LTV will go up naturally… if you still care about that kind of thing.