how to measure and use lifetime value and customer acquisition cost
TRANSCRIPT
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Measuring Marketing Value: Lifetime Value (LTV)
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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
1
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
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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
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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?
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https://blog.kissmetrics.com/how-to-calculate-lifetime-value/
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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?
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By: • product offering
1) Know Thy Magic Formula
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By: • product offering• target market / vertical
1) Know Thy Magic Formula
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By: • product offering• target market / vertical• acquisition channel
1) Know Thy Magic Formula
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By: • product offering• target market / vertical• acquisition channel• sales person
1) Know Thy Magic Formula
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By: • product offering• target market / vertical• acquisition channel• sales person• account manager
1) Know Thy Magic Formula
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By: • product offering• target market / vertical• acquisition channel• sales person• account manager• marketing campaign
1) Know Thy Magic Formula
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By: • product offering• target market / vertical• acquisition channel• sales person• account manager• marketing campaign• buyer persona
1) Know Thy Magic Formula
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Win the games you need to win Focus on retention strategies Thoughtful upsell
2) Increase LTV over time
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+ Channel+ Strategic Partnerships+ Expectation setting early+ Online Self-service + Surprise and delight
- Low Customer Satisfaction- High Churn Rates
2) Increase LTV over time
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Know how to decrease CAC Get close to 5:1 Invest
3) Trampoline your ratio
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3) Trampoline your ratio
Know how to decrease CAC Get close to 5:1 Invest
5:1
1:1
OPTIM
IZE >
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3) Trampoline your ratio
5:1
1:1
SOW > REAP
>
OPTIM
IZE >
Know how to decrease CAC Get close to 5:1 Invest
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3) Trampoline your ratio
5:1
1:1
SOW > REAP
>
OPTIM
IZE >
Know how to decrease CAC Get close to 5:1 Invest
GROWTH
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4) Grow!
THE CUBE MODEL
GET NEW ONES1
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CAC
LTV
1) Add more blocks with healthy unit economics
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1) Add more blocks with healthy unit economics2) In a market with lots of blocks
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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?
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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!
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6) Team forecasting
Pipeline = 4 new customers LTV = $25k
Total new value = $100k
? Staffing? Support ? Overhead/infrastructure
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7) Find more of the right clients
MY VAMPIRE MATRIX
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KNOW THY MAGIC
FORMULA