I justt read an article on Lifetime Value of a Customer and agile marketing. Like so many articles, they make it sound so easy to calculate. I'm so tired of hearing that. As far as I can tell, anyone who writes that article has never actually tried to figure out the lifetime value of a customer with real data...
We measure LVC and find it a very difficult exercise. We tend to think others who measure it easily are either full of it or simpletons. Or maybe they have an easier exercise than we do.
If it were a question for a monthly subscription business of profit per month x average number of months, it would be easy. If we could segment by marketing channel or another customer aspect, we could then compare the segments. EZ peasy
Here's the problem. Our customers often sign up, try it, then quit and take their money back within the two weeks trial. But this same customer might sign up months later and stick around for a long period of time.
Our core service is an online subscription educational service for kids. It turns out that the first sign up might have been just a trial for later.
Customers also quit after six months but come back six months later.
In both of these cases, they might come back through a marketing effort which means putting PPC ads in front of them. Do you assign the value of the second signup to the first case? Treat them separately?
Some customers add a child. Or remove a child. Others refer friends. Others refer lots of friends. It turns out that the arithmetic behind a meaningful calculation is tricky and involves lots of assumptions. Am I the only one with all these questions?
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