Predicting Customer LTV: Myth or Reality ?

– Predicting customer LTV accurately is difficult due to the unpredictable nature of human behavior and changing circumstances.
– Companies often focus on lowering customer acquisition cost (CAC) and increasing customer lifetime value (LTV), but LTV is dependent on the perceived value and use of products.
– Understanding what matters to customers and their preferences is crucial for improving retention and managing expectations.Focus on understanding and learning what matters to customers in the products they are purchasing in order to better manage expectations and improve retention.If companies could actually predict customer LTV, then every company would be a success. Yet, lots of the attribution companies and email service providers all have predictive models in their platforms. You know what they don’t talk about? Their predictive models. There has long been an obsession with predicting the future in business, yet all of it is based on loose correlative behavior. If person A looks at three products and purchases product Z, and someone else does the same thing and purchases product Z, then someone else that does the same will purchase product Z. That’s not exactly how behavior and people work though. Statistically speaking, no one will ever be able to predict the future accurately on a regular basis. People aren’t rational; people make decisions for irrational reasons; things about people’s lives change. They move, they take on different hobbies, they make different life choices, they adapt to their new surroundings, they prioritize different things throughout their lives. You can predict general changes in behaviors, but if you were really good, you’d be in the financial markets, not e-commerce where gambles are fueled by human emotion and constantly being influenced by outside sources. So, I keep seeing everyone obsessing over lowering CAC and increasing LTV. I’ve said this before, I’ll say it again, it’s really easy to influence CAC, but LTV is dependent on the perceived value and use of your products. I love that people think they can influence it, I love that people pick out the “best” customers via recency, frequency, and monetary value. But you know what I love more than that? The irony that they actually have no idea if someone that bought just once tells 100 people about it versus the person that buys all the time and tells zero people about it. But Jon, if they buy a lot, surely they are telling more people about it, right? 100% impossible to know. There are products I’ve only bought once and I recommend to people more than products I have purchased multiple times. In fact, some of those products just last longer, so there’s no need to replace them. So, back to my point, we’re trying so hard to make suggestions and predictions about who’s going to be a great customer instead of pulling levers to bring more people into a brand profitably and letting them decide. Now, the vast majority of people are making all these without direct feedback or input from the customers prior to purchase about what matters to them in the products they are shopping for. How are you going to know the propensity of someone to purchase multiple times if you don’t know what matters to them in the product they are purchasing? You really can’t. Retention is a byproduct of perceived value and use of a product.Start learning the things that matter to people, then you’ll be able to better manage expectations.

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