Okay, Let's Talk About Lifetime Value.

I'm gonna explain what it is, and then why you should focus a heck of a lot of time trying to make it as big as you damn well can.

Oh, and if you already know what it is, well, there's a nuance you might not know about why it's useful, so it's worth sticking around for.

What is Lifetime Value? (LTV)

LTV, or Lifetime Value, is the average revenue a business can expect to earn from a customer over their lifetime (basically until they stop spending with you).

What's the Difference Between LTV and CLV?

While LTV measures the total revenue a business can expect from any single customer account over the entire time they do business with you, CLV is specific to the lifetime value of each individual customer.

In essence:

• LTV gives a broad sense of average customer value across your business.
• CLV digs into individual customer revenue.

For this article, we'll go with LTV to emphasize a collective view that lets you strategize for scale, retention, and recurring revenue. Here’s why focusing on LTV is non-negotiable for sustainable growth.

Why LTV Matters So Much

So, here's the trick: If you make your LTV bigger than your CAC (Customer Acquisition Cost), you make money. Period.

That's it! Simple.

But Wait...It's Not That Simple, My Friend.

There is actually more to it. What if you spend $10 to get a customer, and that customer has a lifetime value of $60, but it takes you 10 years to make back that $10?

That would be rubbish, right?

Enter Payback Period

Again, very simply, you need to get your money back from your acquisition costs as quickly as possible. Once you've done that, the rest is pure profit, baby.

The payback period is the time it takes for the revenue from a customer to cover the initial cost of acquiring them. In other words, it’s how long it takes to break even on that acquisition. So, having a short payback period is best.

What is a Good Payback Period?

It depends on your business model. Are you subscription-based, or do you sell products immediately?

If you're subscription-based, it's rare that you'll break even immediately, but with single products/goods, it’s sometimes possible.

Anyway, here's the overview:

• 0 Days: Damn amazing; you can scale to the moon, my friend.
• 90 Days: The best businesses in the world are built with a 90-day payback period.
• 180 Days: Pretty damn good; while you ain't with the top dogs, you’ve got a great business on your hands. Run fast, young padawan.
• 1 Year: You have a solid business that’ll make money.
• 2 Years: Slow, but doable.
• 3 Years: Quite slow; it’ll take a very long time to build a strong business.

The Juicy Stuff: Why Having a Big LTV Makes You Win

Ohhhhh baby... have I got the goods for you.

If you have a big LTV, you can outspend your competitors on advertising.

Example

Sounds simple, but this is ridiculously powerful. Let’s say you have a higher LTV, which allows you to pay £15 for a customer, compared to the £10 your competitors can afford.

You can now outbid them for every single ad they run. Want to rank number one on Google Ads? Tough luck for them; you outbid and capture the majority of clicks and customers.

Facebook Ads? Same story. You outbid them, and while both CACs go up, you can spend more, meaning they stop running ads.

Congrats, you’ve just taken all the customers, and they’re left with none. You win.

What Are Good Lifetime Values? (LTV)

A good LTV:CAC ratio is around 3:1. The best companies in the world have a 6:1 ratio or better. If you're around 1:1, you’ll likely lose money most of the time.

How Do You Increase LTV?

Here's how you increase your LTV:

1. Retention
   How do you get good retention? Make your product better. Simple.
   You might make it easier to use, improve the UI, or add fun, unexpected touches like witty notifications.
2. Upsells
   Encourage customers to buy a higher-priced version of the product they’re interested in. This could be a premium version, an add-on feature, or even a subscription option. Upsells increase the average purchase amount, driving up overall LTV.
3. Cross-sells
   Suggest additional, complementary products that enhance what the customer is already buying. For instance, if they’re purchasing a phone, recommend a case or screen protector. Cross-sells increase the number of items in each order, boosting LTV.
4. Encourage Frequent Purchases
   Use email marketing reminders or discounts on the next purchase to create regular buying habits. If you’re an app, consider using push notifications.
5. Increase Order Value
   Bundle products to boost order size or offer freebies for larger purchases. Smart product pairings or occasion-based bundles can help customers discover complementary items, driving up order value.

Here's a Video From Alex Hormozi Going Deeper on LTV/CAC Ratio: