Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.
Who Should Read This
Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:
- You’d like to grow your business faster and understand the highest-leverage areas to focus on
- You’d like to evaluate the performance of your marketing
- You’re raising a new round and want to be ready for the questions VCs are going to ask
So, let’s dive right in.
What We’ll Cover
Last time we focused on user growth. We looked into acquisition, retention, and virality metrics, as well as interactions among these three. Today, we’ll assess the dollar impact one user has on our business. To do it, we’ll learn to calculate and use another metric: customer lifetime value.
Summary (TL;DR)
- Customer Lifetime Value (CLV) = dollar value a company can earn from serving one customer.
- Retention ↑ => CLV ↑
- Price ↑ => CLV ↑
- Discount rate ↑ => CLV↓