Terms of Trade · Edition 1: The PE deck
LTV. Lifetime value
Definition
Lifetime value: the total contribution a customer is expected to generate over the period they remain a customer, usually calculated as average order value multiplied by purchase frequency multiplied by expected lifetime, less the cost of serving them. The word to watch is expected.
Field note
LTV is the optimistic punt the professional gambler takes on getting a return on the budget, and normally the last place they look to turn a profit. It is the number that makes any acquisition cost look prudent, because a spreadsheet has decided the customer will come back, and the spreadsheet has never been asked what happened to the cohort from two years ago.
Board question
Show me the realised value of the cohort acquired twenty-four months ago against what the model predicted for them at the time.
Applied through
Customer Truth in the Cat’s Whiskers, a current understanding of who is being served, and the repeat rate the Review measures against.
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