Determining the Lifetime Value of a User

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The Lifetime Value of a User

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Performing this auditing process will allow you to determine if your marketing is both accountable and profitable. If you assess all of your marketing channels in this way you may be able to determine that some of the channels are not performing as well as others and therefore need to play a different role in your marketing mix.

For example, with the slow decline of print advertising, advertising in a newspaper may be shown to play a minor role in actually converting your audience. Therefore, your spend on newspaper advertising may be altered to reflect more of a brand-awareness role in your marketing mix.

How to Define your “User Lifetime Value”

Defining to lifetime value of the average user depends on your business model.  There will be differences in user lifetime value depending on a variety of factors, and these segments are worth considering. Differentiating factors may include:

 

  • whether or not the payment schedule from a particular user group is ongoing or once-off
  • age group
  • interests
  • gender
  • other demographic and behavioural factors

How much overall dollar value can you provide to a single user, given that people are more than a dollar value?

‘User Lifetime Value’ refers not to how much each person is worth over their lifetime, but to how much monetary value is gained from each user on average during the time period in which they engage your business.

While cost-per-acquisition looks at how much it costs to acquire a new customer, lifetime value of the customer is focused on the idea that is cheaper to sell to an existing customer that is still to acquire a new customer. If your sales channels are optimised and you have methods in place to upsell new products and services to existing customers you will be able to see how much any given customer is worth to you.

If the item promoted to your audience is a service or a product which involves ongoing payment, then user lifetime value will take that into account also.

CASE STUDY

 

World Vision Australia

 

Primary value offering:

Ongoing child sponsorship at $60 per month

Average user engagement lifetime:

For ongoing child sponsorship: 5 years (the average sponsorship lasts 5 years)

User lifetime value:

= $60 * 12 * 5 = $3600

As an aside, this user lifetime value then allows World Vision Australia to calculate and justify how much it spends to acquire each sponsor through all applicable marketing channels.