The Dangers of LTV

Founder's Journal

Morning Brew

Careers, Business, Entrepreneurship

4.8 • 1.1K Ratings

🗓️ 13 March 2024

⏱️ 26 minutes

🔗️ Recording | iTunes | RSS

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Summary

Episode 119: LTV, or lifetime value, has become the gold standard for startups, specifically how they measure the effectiveness of their various marketing channels. LTV does have merit, and it is a helpful proxy to prioritize marketing and understand the economics of each customer you acquire, but if relied on entirely, it can be misleading at best and harmful to your business at worst. I’ve found what I believe to be one of the best pieces on the internet about the challenges of this methodology, a 12-year-old essay by investing legend Bill Gurley that is as relevant today as it was then. The Dangerous Seduction of the Lifetime Value (LTV) Formula: https://abovethecrowd.com/2012/09/04/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/ DTC Metrics, Explained: https://www.nasdaq.com/articles/dtc-metrics-explained-2020-02-12 Send us an email and let us know what you think of the idea! [email protected] #FoundersJournal #Startups #Entrepreneur Listen to Founder’s Journal here: https://link.chtbl.com/OV4W93_W Watch Founder’s Journal here: https://www.youtube.com/@FoundersJournal/ Subscribe to Morning Brew! Sign up for free today: https://bit.ly/morningbrewyt Follow The Brew! Instagram - https://www.instagram.com/morningbrew/ Twitter - https://twitter.com/MorningBrew Tik Tok - https://www.tiktok.com/@morningbrew Follow Alex! Alex Lieberman (@businessbarista) Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	What's up everyone? Welcome back to another episode of Founders Journal. I'm Alex Lieberman
0:04.8	co-founder and executive chairman of Morning Brew. On Founders Journal, I act as your
0:09.8	startup Sherpa curating the best content for entrepreneurs, summarizing it so you don't have to read
0:15.2	it yourself, and analyzing it so you have actionable takeaways to apply to your business.
0:20.3	Before we hop into it, I have one ask of you.
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0:28.2	and the only way to grow is through word of mouth and promotion on social.
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0:34.6	dozens of hours that my team and I spend each week creating the show
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0:44.6	today's episode and make sure to tag me so that I can give you the proper props once you
0:49.7	post.
0:50.7	Now let's talk about today's episode.
0:53.0	LTV or Lifetime Value has become the gold standard for startups and specifically how they measure
0:58.9	the effectiveness of their various marketing channels.
1:02.3	Very simply, LTV is the cumulative contribution dollars,
1:05.8	also known as cumulative net profit,
1:08.1	over the course of an entire relationship with a customer.
1:11.4	There are different methodologies to calculate LTV, but they all involve a few of the same variables.
1:16.1	The average value of a customer during a period of time and the average lifespan of a customer before they churn.
1:22.2	There is a great deep dive on growth
	...

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