2. What is LCV?
Calculation of Value
LCV is the net value of a customer over their lifetime,
calculated to estimate the long-term worth of a customer.
Interchangeable Metrics
LCV, CLV, and LTV are used interchangeably to refer to the lifetime
value of a customer.
Compact Measurement
LCV is a powerful and compact measurement of an individual customer's
value to a business.
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3. Calculating LCV
Net Present Value
Enterprise Value
Comparison
Accurate Overhead
Allocation
LCV involves calculating
the net present value of
an individual customer’s
cash flow over their
lifetime.
Calculating LCV to the
net value should closely
align to the enterprise
value determined by
discounted cash flow.
The accuracy of overhead
cost allocation is
essential in calculating
LCV on a net basis to
ensure precision.
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4. LCV and Enterprise Value
Valuation Equivalency Operational Metric
Alignment with
Shareholder Value
The sum of LCV equating
to the enterprise value
signifies the
operational importance
of LCV in value
creation.
LCV is a versatile
operational metric that
is closely tied to value
creation for the
entire business.
Embracing LCV can align
shareholder value
creation throughout the
various facets of a
company.
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5. LCV vs. EV Per Active Customer
Comparative Valuation
LCV equals EV divided by all active customers, for deriving a comparative
value per subscriber metric
Assessment of Subscriber Strength
Comparing the value per subscriber, derived from EV divided by active customers,
portrays the relative strength of individual subscribers between companies.
Cable TV Metric
The EV divided by active customers metric is often used by cable
television companies for valuation purposes.
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6. LCV and Business Value Creation
Impact of CAC on LCV
Reducing Customer Acquisition Cost (CAC) elevates LCV and subsequently
contributes to increased business value.
Cost of Goods Sold
An increase in the cost of goods sold diminishes LCV and the overall value of
the business.
Shareholder Value Creation
Using LCV, businesses can drive shareholder value creation in various
areas of the company.
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7. Focus on Customer Acquisition Cost
(CAC)
Volatility of CAC
In the digital marketing realm, CAC tends to be volatile due to competitive
forces, especially in relation to pricing and operating expenses.
Impact of Marketing Fluctuations
Fluctuations in marketing expenses can significantly influence LCV, affecting
the overall valuation of the business.
Customer Acquisition Counts
Marketing fluctuations can also lead to higher or lower customer
acquisition counts, compounding their impact on the overall valuation.
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8. Impact of Marketing on LCV
Fluctuations in LCV Customer Acquisition Business Valuation
Marketing expense
fluctuations can
directly impact LCV,
subsequently influencing
the overall value of the
business.
Marketing influences the
number of customer
acquisitions,
contributing to the
comprehensive impact on
business valuation.
The impact of marketing
on LCV extends to the
value of the entire
business, reflecting the
significance of
strategic marketing
decisions.
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9. LCV Contribution Calculation
Net vs. Contribution Strategic Business
Decisions
Overhead and
Financing Costs
Marketing expense
fluctuations can
directly impact LCV,
subsequently influencing
the overall value of the
business.
Marketing influences the
number of customer
acquisitions,
contributing to the
comprehensive impact on
business valuation.
The impact of marketing
on LCV extends to the
value of the entire
business, reflecting the
significance of
strategic marketing
decisions.
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10. Net vs. Contribution Calculation
Net LCV Calculation
Net LCV is calculated inclusive of overhead, providing insights into the
overall value of customers to the business.
Contribution Margin Analysis
Contribution calculation enables businesses to assess the lifetime customer
value for paying all overhead and financing costs.
Profitable Customer Additions
Understanding the contribution margin level facilitates the profitable
addition of customers, driving growth in enterprise value.
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11. Understanding Contribution Margin
Connection to Overhead
Contribution margin illustrates the lifetime customer value available to
cover all overhead and financing costs of the company.
Profitable Customer Base
Visualization and understanding of the survival curve for the probability of no
default up to each payment.
Impact on Net LCV
A lower contribution margin can result in a reduction of net LCV over
time, emphasizing the need for strategic customer additions.
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12. Strategic Focus with LCV
Operational Metric Alignment
LCV aligns with value creation for the entire business, guiding strategic
decisions in various organizational areas.
Shareholder Value Creation
Embracing LCV allows companies to drive alignment with value creation for
shareholders through the strategic utilization of customer lifetime value.
Business Growth Approach
Strategic focus on LCV facilitates a proactive approach to customer
acquisition and overall business growth aligned with shareholder value
creation.
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13. Flexibility of LCV
Strategic Decision-Making Insights for Planning Adapting Strategies
The flexibility of LCV
enables businesses to
make strategic decisions
aligned with long-term
customer value and
business growth.
Understanding the
flexibility of LCV
provides valuable
insights for strategic
business planning with a
focus on long-term
customer value creation.
Businesses can use the
flexibility of LCV to
adapt marketing and
operational strategies,
ensuring alignment with
long-term customer value
creation.
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14. Implications for Future Planning
Strategic Business Decisions Operational Strategies Long-Term Value Planning
Understanding the
implications of LCV
guides strategic
business decisions and
planning, focusing on
long-term customer value
creation.
Businesses can utilize
LCV insights to develop
operational strategies
that align with long-
term customer value
creation and overall
business growth.
LCV implications provide
a framework for long-
term value planning,
ensuring strategic
alignment with customer
value and business
growth objectives.
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15. Conclusion
Long-Term Customer Value
LCV offers insights into the long-term value of each customer, highlighting
its critical role in driving strategic business decisions and planning.
Business Strategy Impact
By understanding and leveraging LCV, businesses can make informed decisions
impacting everything from marketing costs to the value of the entire business.
Future Planning Significance
LCV uncovers new ways for businesses to improve their strategies, enhance
customer relationships, and plan for lasting success in a dynamic
marketplace.
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