Ghadeer The Marketeer

Detail Blog

Life Time Value (LTV)

Let’s talk about lifetime value.

Simply put, the lifetime value of a customer is how much revenue a customer will generate for your business over a specific duration of time.

Let’s assume you are a skincare company and you sell your top selling product, “lucy’s face cream” for $50.

A typical customer will “lucy’s face cream” every month for 12 months before they stop buying.

Crunching the numbers, your customer has a lifetime value of $600

$50/month x 12 months = $600.

What does this mean for your business?

Let’s assume a profit margin of 50% on “lucy’s face cream“. This means you can spend $300 to acquire a customer. Just because you can spend that much to acquire a customer doesn’t mean you should, but it does mean you have ample room to get a customer.

Now let’s talk about the main problem MANY online business owners make (especially those in the e-commerce space).

They fire up a conversion campaign on Facebook and are looking to be profitable from the get-go. That means a customer acquisition cost of less than $25 for the scenario above.

Let’s assume they run a $1000 campaign and get 25 customers. That means they paid $50 to acquire a customer and gave away the product for free.

$50 Face Cream ➡️ 50% margins ➡️ $25 profit

But wait… didn’t we just say that we can spend $300 on a customer and still break even?

You just paid $50 to acquire a customer, which means you made $250 in profit over the life time of your customer... and you haven’t even sold them anything else…

This is the problem that most e-commerce store owners make. They want to be profitable on the first sale and fail to realize that Facebook is a customer a question tool.

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