Strategy: How Lifetime Value Differs in Catalog vs. Web

Lifetime value (LTV) is the value of all purchases a given customer has made to date, plus the value of purchases that customer is likely to make (discounted for present value) over time. LTV helps determine how much you can afford to invest in new buyers looking beyond their initial purchases.

For starters, you can afford to invest in a new buyer as long as you spend less than the average lifetime profit per customer (including your buyer acquisition cost). This assumes, of course, that your cash flow is sufficient enough to handle a given level of spending. You’re making a financial investment to acquire a new catalog buyer in hopes the payback will come in the future. How long you can afford to wait for your return on investment depends on your financial situation and the payback opportunity itself. I recommend one year or less.