Life Time Value

The cost of advertising and marketing frequently gets compared to the revenue generated from the marketing and advertising and from that decisions are made whether to consider spending money on marketing and advertising.

The thing people have to understand is they need to be looking at the actual life time value of the customer and not just the immediate return.

If the cost of customer acquisition is $X and the immediate revenue generated from the customer is less then $X then this might be perceived as a bad investment. On the other hand, if this customer becomes a recurring customer, and over the next 5 years, they result in $10X then this could be considered a positive investment.

We need to look at the life time value of a customer and not just the immediate revenue in order to determine if something is a good investment or not.

Have a great day!