Thread by @dunkhippo33

Today, let's talk about lifetime value (LTV). Here's a thread on how to think about it as a business owner

Read on >>

1) What is LTV? It's how much a customer is worth TO YOU as a business over a customer's lifetime.

So for a marketplace, LTV isn't the money a person spend on the platform. It's your % take on the topline spend over time of a given person.

2) For this reason, obv, retention is really impt, LTV goes up as you retain a customer.

Coca-cola is a good example. They spend a lot of $$ on ads, but they know you will drink cokes every wk for your entire life. I'm sure the ave LTV for them is at least $1k+.

3) You can try to reduce your customer acquisition cost (CAC) as much as possible, but ultimately LTV is your best lever.

This is because you can almost always get ppl to buy your prod more frequently AND/OR you can create new prods to upsell them on.

4) If you have a high ave LTV, investors and acquirers will be VERY interested in your biz. This is because they know with patient capital they can make a lot of money over time.

5) This is why the valuation (mkt cap) of Snowflake is arguably high but many patient investors think it's worth it.

Look at the net-dollar retention. The worth of their ave customer goes up over time significantly

blog.publiccomps.com/snowflake-s1-i…

(not advising you to buy the stock)

6) In times where there's a lot of frothy capital, ppl care less about payback period -- the time to breakeven on getting a given customer. (Note: as pre-seed investors @hustlefund, we still care for short payback periods, because pre-seed raises are small)

7) This is because extra investor $$ can help a co survive long enough to get new customers to profitability bridging the capital gap.

So if you have a proven sticky product (even better w/ upsells!), today's mkt is good for you - even if your payback period is long.

8) The flip side is there are a lot of companies that may have products that ppl love but the products are too focused on a particular stage.

For ex: The Knot. It makes money from brides getting married. But most ppl don't get married that often!

9) So they had to build out The Nest and The Bump to be able to retain someone throughout a longer period of their life to extend the LTV.

10) There are PLENTY of companies like this -- companies that focus on kids is another type. A child grows up. That limits your LTV unless you expand out somehow.

Lots of health companies that focus on a particular problem that someone gets through are also in this boat.

11) This isn't a bad thing - going niche to start is great.

BUT, on day 1, you need to have a vision for how you expand LTV. Do you add on more services? Do you expand the life period that you serve of your customer?

12) And it's impt to communicate this when you pitch (if you're pitching investors) as well.

Strangling your own LTV is not something any business owner should want. And important to pre-empt this concern an investor may have.

13) The gist is that business owners should think about LTV from day 1 - even if you are not building upsells.

The sooner you can start increasing LTV, the more choices you have for cust acq channels to expand your biz repeatably.