STEP 17Calculate the Lifetime Value (LTV) of an Acquired Customer
In This Step, You Will:
Estimate the revenue you can expect to receive from each additional customer.
Estimate gross profit over time from that revenue estimate, taking into account the net present value.
LTV and CoCA are really just educated estimates that will help you understand the critical drivers behind your company's financial success. Understand the high‐level concepts and key assumptions, remember that these numbers are ranges and not precise, and don't get lost in the details.
Why This Step, and Why Now?
So far you have zeroed in on a very well‐defined Beachhead Market that you can provide unique value for. You should have high confidence of this from Steps 1–11. Since those steps, you have turned your focus to how the customer acquires the product. The effort and resources to get the customer to acquire the product is the biggest unknown in almost every new venture. For most new companies, marketing and sales expenses are well over 50% of their total expenses and the one that carries the most risk.
To address this in a systematic fashion, you started in Steps 12 and 13 (the DMU and customer acquisition process) to understand this process in much more detail so you could make educated decisions ...
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