STEP 17Estimate the Lifetime Value (LTV) of an Acquired Customer
WHAT IS STEP 17, ESTIMATE THE LIFETIME VALUE OF AN ACQUIRED CUSTOMER?
Estimate the total profit you will get from a new customer, on average, over the time period that the customer would stay with you.
WHY DO WE DO THIS STEP, AND WHY DO WE DO IT NOW?
The LTV is an important number because you will compare it against your Cost of Customer Acquisition (COCA) to see if your startup will make more money from a customer than it costs to advertise and otherwise convince a customer to buy your product. As a rule of thumb, LTV should be at least three times greater than the COCA in order for you to be profitable, though this factor varies wildly from industry to industry. Knowing what drives LTV will help you make smart decisions about your product. The LTV can now be estimated because of the work you’ve done in Step 15, Design a Business Model, and Step 16, Set Your Pricing Framework.
It may seem complicated, but COCA is just an estimate that will help you understand the critical drivers behind your company’s financial success.
PROCESS GUIDE
Now that you have chosen a business model (at least ...
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