The Dangerous Seduction of the Lifetime Value (LTV) Formula – Forbes

A great write up on the Lifetime Value equation.  Basically, the LTV model is an equation that tells you how valuable a user is in terms of dollars and that gives you an idea of how much you can spend to acquire a user (or customer).

This is an equation that can be gamed and it often is.  Bill Gurley’s main points are listed below.

The Dangerous Seduction of the Lifetime Value (LTV) Formula – Forbes.

  1. It’s a Tool, Not a Strategy
  2. The LTV Model Is Used To Rationalize Marketing Spending
  3. The Model is Confused and Misused
  4. Business Isn’t Physics – The Formula Is Not Absolute.
  5. The LTV Variables “Tug” at One Another
  6. Growing Becomes a Grind
  7. Purchased Customers Underperform Organic on Almost Every Metric
  8. The Money Could Go to the Customer
  9. LTV Obsession Creates Blinders
  10. Tomorrow Never Arrives

It impresses me that a VC can show that he understands this as an operator would.