Definition of customer LTV? I stand corrected

Definition of customer LTV? I stand corrected – that is why…

You will receive a valuable gift from Terry Savage who, like you, reads this blog.

Was my definition wrong? Well, it is more a case of over-simplifying… here’s what happened:

Terry contacted me after reading chapter 3 of my book – you can see it in the download offered in my post… ‘If An Opera Singer Can Do It… So Can You‘

In his email he said:

Hi Carol,

I’ve been looking at the downloads you offer to new subscribers and following through onto your website.

I totally agree with your assertions in the Profit Mastery interview about the failure of many to understand true lifetime value. What I take issue with is your formula for calculating true lifetime value on page 16 of the sample chapter from your ‘I Want To Buy…’ book.

I’m a 35 year veteran of direct marketing and have lectured students sitting the admission examinations for the CIM and IDM. Had any of them used your formula in those examinations they would have failed.

At best, your formula calculates gross sales value and nothing more.

There is no consideration of inflation and its impact on money. Without it there is no basis for valuation over time. This matter is even more important when considering Internet sales where foreign currency fluctuations add another dimension.

In turn that raises the matter of segmentation and the possibility that there can be more than one lifetime value.

Different segments of a database may have different lifetime values of which the item(s) purchased, how frequently and at what price/currency, and more, may influence the lifetime value calculation differently. Yet all segments may be profitable.

That being the case, the nurturing you refer to may be organised differently for the different segments. So the costs of that nurturing or CRM in the jargon must also be factored in.

This is a long way from your simplistic formula.

So why have I bothered sending you this email? Well, like your answer to the question posed to you about giving information away I too believe that there is value in giving information away. Also because I have obtained useful value in your articles it’s right to give feedback.

Kind regards,
Terry Savage
Managing Director, Savage Advertising Services

And he’s right… I described a very simplistic way of checking the lifetime value of your customers… my prime intention is to get business people to consider the long term relationships and frequent transactions that a new prospect represents so they make sensible business decisions about their marketing spend and activity.

Terry has a valid point though (and he should know because, as he mentioned, he has a long track record in direct marketing).

So I invited him to do a guest posting to explain, in more detail, exactly how this important element of your business, should be gauged.

Generously, he not only agreed… he went one step further (actually quite a few steps further!) and created a mini course – yours for the taking.

It will be released as a series of 3 short articles next week. He also decided to make life extremely easy for you… he’s created an Excel worksheet that calculates your life time value taking into account all the additional considerations he mentioned above. A master template of the spreadsheet, an example model spreadsheet and a PDF containing all 3 articles will be available for download with the final article so you can easily print, read and keep them for future reference.

We’re just finishing the editing and preparation ready for publishing. Look out for a post next Tuesday titled ‘Getting to grips with the Real Customer Lifetime Value – Part 1′… that will be your first valuable insight to this important know-how.

BTW – this is crucial knowledge for anyone who owns a business... please use the share buttons below to let other business owners you know have advance notice of these valuable articles or email your colleagues and suggest they visit www.copywriting4b2b.com. I’m sure they’ll appreciate your thoughtfulness. Thanks