LTV - 3 Questions To Ask Yourself

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LTV - 3 Questions to Ask Yourself on the Life Time Value model

cogent retail consulting

prologueThe quality of the answers we find are directly related to the quality of the questions we ask.

Business leaders today receive so much information and data that it gets over-whelming sometimes. You’d agree - the ever elusive & deeper insights are found by stepping back and asking ourselves the right questions.

To help you do that, we keep asking the kind of questions that may be useful to you, and invite you to consider them briefly, as you keep growing your business.


introductionLTV or the Life Time Value model is loved by many Internet Business executives.The lifetime value is basically the Net Present Value of the profit derived from a customer. Used for cost comparisons of customer acquisition; what is sometimes called SAC or Subscriber Acquisition Cost versus the discounted positive cash flows realized from a customer over time.

Marketers argue that so long as the discounted future cash flows exceed the SAC, we can continue aggressive spending on marketing.

How far is this true ? And, What other questions does this raise ? Lets take a look .


question 1 : what are the variables, how do they interact ?

The variables are :

ARPU ( Average Revenue per User )n is Average Customer Lifetime (the inverse of the churn where n=1 divided by the annual churn )WACC ( the weighted average cost of capital )Costs ( annual cost of support to the customer )SAC ( Subscriber Acquisition Costs )For the mathematically inclined, the simplified version of the formula :


question 1 : what are the variables, how do they interact ? … contd

Sub questions we explore here :

If we attempt to increase ARPU does churn rise or fall ?

To arrest churn, what are the associated costs of Customer Service ?

Is there a change in the quality of new customers being acquired ?


question 2 : how far can this be extended?


If we keep increasing spend does the customer base grow proportionately?

As the business adapts and evolves, how do future variable costs impact us ?

Can “buying” customers count as a viable business strategy ?

What stops a competitor from doing the same thing ?


question 3 : can this money go to the customer?


Can we provide a better value proposition to the customer ?

A higher margin is needed to accommodate this marketing spend; how does this impact the price to consumer ?

Am I spending more on improving the customer experience or on advertising ?


find out more . . .


If you found this useful and would like to give us feedback, or find out more on how we can help you grow your business, we’d love to hear from you !

Cogent Retail ConsultingPh : +91.9391.00.738Email : [email protected]

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