Background: Why CLTV is important?
The most important question we ask prospects during our introductory call is: what is your customer’s lifetime value? And if they have a good answer, we go further with: do you have this segmented into customer cohorts?
This metric ultimately determines all paid advertising planning. We don’t know what an acceptable customer acquisition cost is until we have determined our client’s total average customer lifetime value, as well as, the lifetime value of customer cohorts delineated by how frequently these cohorts purchase again, or churn, over a given time frame. Once this is clearly determined, we’re much better prepared to justify advertising spend on various channels as well as certain audiences.
We’ll explain why this is important. Starting first with the definition of customer lifetime value. Wharton Professor of Marketing, Peter Fader’s definition as defined by his book, Customer Centricity: Focus on the Right Customers for Strategic Advantage, is the best start:
“Can we look at what a customer has done in the past and make a pretty accurate projection of what they are likely to do in the future?
And it’s not only coming up with a single number, it’s breaking it down into how long will this customer maintain the…
