- LTV is a tool, not a strategy.
- The LTV model is used to rationalize marketing spending.
- The model is confused and misused.
- The formula is not absolute. It's at best a good guess.
- The LTV variables "tug" at one another. The variables in the LTV equation are interdependent, not independent.
- Growing becomes a grind. Investing heavily in marketing doesn't necessarily lead to a commensurate drop in subscriber acquisition costs.
- Purchased customers underperform organic on almost every metric.
- The money could go to the customer to provide a better value proposition to the customer and to provide a better customer experience.
- LTV obsession creates blinders. Companies that obsess over LTV can become overwhelmed by it, whereas scrappy companies can find more efficient forms of marketing. Bill uses a great example here.
- Tomorrow never arrives. It's difficult to create permanent equity value with LTV.
Here's the link: http://abovethecrowd.com/2012/09/04/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/
Also, some of the comments are very interesting.
J.J. Colao of Forbes, provided a defense of LTV in "In Defense Of The Lifetime Value (LTV) Formula." The article points out that with the proper oversight, LTV can be effective. It also provides a very interesting real-life example. The article offers five tips for effectively applying the LTV formula in a business:
- Prize customer experience above all else.
- Keep the variables clean.
- Isolate customer segments, and then apply the formula.
- Don't rely on conventional marketing. Use a variety of marketing approaches, such as viral, social and PR.
- Maximize LTV to a point, then scale.
Here's the link: