Maximize LTV
In the article [xxx], we saw that the formula for buying traffic on the internet is quite simple:
LTV > CAC
Lifetime Value greater than Customer Acquisition Cost.
So far, so clear.
However, this naturally raises two new questions:
First, HOW do I maximize the LTV?
And secondly, HOW do I minimize the CAC?
Here, I want to give you my best tips for the first part.
How do I maximize the LTV?
Just to warm up, what is the LTV?
The Lifetime Customer Value is the sum of all revenues that I generate on average with a customer over his entire "lifetime".
Important: This can be both direct and indirect revenues!
Direct revenues are transferred by a customer directly from his account to mine.
Indirect revenues are brought in by a customer for me.
Here's an example to explain: Let's assume, each customer transfers an average of $500 to me.
At the same time, each customer refers to me an average of one additional customer.
Then the LTV of a new customer is $1,000!
What does the LTV help me with?
In short, everything.
It is the most important key figure in my business.
Why?
Because the LTV determines what margin I have.
And my margin determines how much I earn.
AND it determines how well I can "buy" new customers.
If I can buy many customers and earn a lot per customer, then I have a business.
If I can't buy customers and don't earn anything per customer, I have a pile of crap.
This all goes back to the principles of Scale and Magnitude.
How do I maximize the LTV?
Admittedly, that was quite a bit of preamble.
But it's important!
Because first, I need to understand the overriding importance of the LTV.
This helps you and me to muster the energy to constantly work on its improvement.
And this is how it goes...
The two fundamental levers are: First, more purchases per customer.
Second, higher value per purchase.
Scale and Magnitude, there they are again.
X x Y = LTV
The credits for this incredibly simple yet not obvious realization go to Jay Abraham.
Broken down into a simple strategy, this means:
If you want to maximize the LTV, then find ways to sell more to a customer, and find ways to increase the value per purchase.
What specific strategies can I use to maximize the LTV?
Volume Discount: I offer my customer a discount if he buys more.
Bundle: I bundle my offer with a complementary offer. Example: The McDonald's menu.
Cross-Sell: I offer my customers my own complementary offer. Unlike the Bundle, as a standalone offer and not bundled. Example: "Do you want fries with that?".
Cross-Referral: I offer my customer a foreign complementary offer, for which I receive a commission.
Subscription: I offer my offer in a subscription. Example: Amazon's subscription offer for regular use items.
Reminder: I remind my customers to re-purchase my offer. Example: My doctor reminds me after a year of the next dental cleaning.
Upsell: I bring my customers to a higher-value and more expensive offer. Example: The "Large Menu" at McDonald's, instead of the "Small Menu".
So, these are seven different ways to increase the LTV.
I'm sure there are at least 14.
That's why I will expand the list whenever something new comes to mind.
Do you have another way that is not listed here?
Great, then please let me know here and I'll add it.
What principles to remember?
What principles should I remember?
As you know, I like to keep things as simple as possible.
So, what long-term effective principles can you and I remember so that we can keep the LTV high in the future... and take the significant benefits that this has for us?
Principle 1: LTV
Principle 2: Scale
Principle 3: Magnitude