LTV calculates the total profit a customer is expected to generate over their relationship with a business. This metric incorporates various assumptions about customer behavior, which can greatly influence the results. For instance, differing assumptions about churn rates can yield vastly different LTV results, making a small change in prediction potentially catastrophic for a business’s profitability.
Many businesses use average LTV figures, which can obscure the reality that not all customers have the same value. This reliance on averages can lead to misleading conclusions, especially when most revenue is often generated by a small number of loyal customers. Additionally, LTV’s effectiveness is contingent on its profit-based calculation, yet many mistakenly use revenue figures, neglecting crucial costs associated with customer retention. Ultimately, LTV’s accuracy can be highly sensitive to the company’s financial environment, impacting strategic investment decisions.
👉 Pročitaj original: CIO Magazine
