How to read a Lifetime Value (LTV) by Cohort?
Customer Lifetime Value (CLTV) will usually* grow over time based on an individual customer grouping called a Cohort. Some of these Cohorts will perform better over the same period of time due to circumstances like the time of year or discount codes used that month.
As a growing business you need to see if newly acquired customers are turning into a higher value over the course of their time as a customer versus those that joined earlier on.
With this knowledge in hand you can start to understand your customer's purchasing patterns better and then start experimenting with ideas to increase CLTV.
With Peel there are many ways to approach this huge topic so to start we've outlined some areas where we would start gathering information.
CLTV for Month 1
The first thing to look at what the CLTV is for Month 1 and see the if it changes between other Cohort months.
Your April 2021 Cohort may be $20 and around $40 the rest of the cohort months in the past 12 month period. There must be a reason for this, economic, promotional, or otherwise. Maybe it was Black Friday and you ran a super sale and promotion to bring in new customers? In this case those customers may have been acquired at lower value.
Now the question is, did that result in a higher/ healthy LTV over time? Did those customer you acquire at a lower amount end up coming back to purchase again and spend more. Was this good for your business? By lowering the barrier of entry, did it ultimately do the trick of increasing CLTV.
Why do I have decreasing CLTV?
If your CLTV is decreasing then you should look at the Refunds by Cohort metric to see the Refunds behavior and how that is impacting LTV.
CLTV Growth Rate over Time
How much is your customer lifetime value growing from one month to the next month? Are the numbers always increasing? Is there a dip then an increase due to product seasonality?
Time always matters there is always a time component in the calculation - for who? & for what time period?
CLTV can help in other ways too, like shining a light on how much money you should be spending on acquiring your customers because it tells you how much value they’ll bring to your business in the long run.
You'll know this about your customers:
- Which products they bought through Market Basket Analysis and Customer Journey
- What channel they came from
- Which attributes define the customers from each month of your business
All of this will help lead you towards to the highest LTV customers and then build out some campaigns to re-engage through Audiences.
Updated 10 months ago