Measuring Marketing Value: Lifetime Value (LTV)

ME

=

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Lifetime Value (LTV)

Customer Acquisition Cost (CAC)

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TODAY

THEORY PRACTICE

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MY JOURNEY WITH LTV-CAC

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CAVEATS

We want to be great marketers (growers)

How to lead, even when not in leadership

Data is important

Our context

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HOW DO WE GROW?

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HOW DO WE GROW?

GET NEW ONES

KEEP CURRENT ONES

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2

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HOW DO WE GROW?

GET NEW ONES

KEEP CURRENT ONES

1

2

LTV HELPS WITH BOTH

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5x-9x more costly to acquire new customer vs. retain existing

12SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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It takes 12 positive interactions to make up for one unresolved negative experience

=

SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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9%

70%

91% of unhappy customers will not willingly do business with

you again.

Resolve a complaint in the customer's favor and they will do

business with you again 70% of the

time.

START

SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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Americans tell an average of 9 people about good experiences, and tell 16 people about poor experiences.

vs.

SOURCE: https://www.helpscout.net/75-customer-service-facts-quotes-statistics/

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Lifetime Value (LTV)

• What’s the value that this customer brings?

• Long-term view of customers

• “Average deal size” if one-time

• How can companies with inexpensive products justify big marketing budgets?

https://blog.kissmetrics.com/how-to-calculate-lifetime-value/

SOURCE: https://blog.kissmetrics.com/how-to-calculate-lifetime-value/

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Lifetime Value (LTV)

• Simple LTV = Total revenue from client

• Traditional LTV = (Avg. gross margin) x (Customer retention rate / (1 + Discount rate - Customer retention rate)

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Lifetime Value (LTV)

• Simple LTV = Total revenue from client

• Traditional LTV = (Avg. gross margin) x (Customer retention rate / (1 + Discount rate - Customer retention rate)• Gross margin not revenue• Churn matters• “Bird in the hand is worth two in the bush”

REVENUE+

MARGINAL

PROFIT +

REALISTIC

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Customer Acquisition Cost (CAC)

• (Sales + Marketing + hard costs) / number of deals acquired

• Does *not* factor in overhead, delivery, support (operating expenses)

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The Magic Formula – LTV:CAC

EXAMPLE

LTV = $25,000

CAC = $6,000

LTV:CAC = 4.2

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The Magic Formula

3 : 1 healthy

5+ : 1 leaving $ on the table

1:1 spending too much

Recover CAC in 12 months

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WHAT NOW?

By: • product offering

1) Know Thy Magic Formula

By: • product offering• target market / vertical

1) Know Thy Magic Formula

By: • product offering• target market / vertical• acquisition channel

1) Know Thy Magic Formula

By: • product offering• target market / vertical• acquisition channel• sales person

1) Know Thy Magic Formula

By: • product offering• target market / vertical• acquisition channel• sales person• account manager

1) Know Thy Magic Formula

By: • product offering• target market / vertical• acquisition channel• sales person• account manager• marketing campaign

1) Know Thy Magic Formula

By: • product offering• target market / vertical• acquisition channel• sales person• account manager• marketing campaign• buyer persona

1) Know Thy Magic Formula

Win the games you need to win Focus on retention strategies Thoughtful upsell

2) Increase LTV over time

+ Channel+ Strategic Partnerships+ Expectation setting early+ Online Self-service + Surprise and delight

- Low Customer Satisfaction- High Churn Rates

2) Increase LTV over time

Know how to decrease CAC Get close to 5:1 Invest

3) Trampoline your ratio

3) Trampoline your ratio

Know how to decrease CAC Get close to 5:1 Invest

5:1

1:1

OPTIM

IZE >

3) Trampoline your ratio

5:1

1:1

SOW > REAP

>

OPTIM

IZE >

Know how to decrease CAC Get close to 5:1 Invest

3) Trampoline your ratio

5:1

1:1

SOW > REAP

>

OPTIM

IZE >

Know how to decrease CAC Get close to 5:1 Invest

GROWTH

4) Grow!

THE CUBE MODEL

GET NEW ONES1

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CAC

LTV

1) Add more blocks with healthy unit economics

1) Add more blocks with healthy unit economics2) In a market with lots of blocks

4) Combine CAC with sales metrics to reverse-engineer marketing budgets

CAC = $6,000Close rate = 33%

Qualified leads = $2,000 each Qualification rate = 20%

Cost per lead = $400Web conversion rate = 5%

Web traffic = $20/visitor

What channels, strategies, content can drive leads for $400/each? $20 web visitors?

5) Sales forecasting / quotas

CAC = $6,000

Sales Salary = $6,000

=Close one deal per month

LTV:CAC Ratio = 5:1They ask: “Can we do XYZ?” Because ratio is healthy: clear YES!

6) Team forecasting

Pipeline = 4 new customers LTV = $25k

Total new value = $100k

? Staffing? Support ? Overhead/infrastructure

7) Find more of the right clients

MY VAMPIRE MATRIX

KNOW THY MAGIC

FORMULA

jesse@magneti.com

/in/jessemarble

/jessemarble