Comment by daveungerer | Hacker News Reader

Comment by daveungerer | Hacker News Reader

That's not lifetime value. Let's break the term down:

Lifetime: The entire length of the relationship with your customer, including the future, not just for the period where you have data, as done in the article. Of course there will be some estimating involved, but that's what happens when you consider an entire "lifetime".

Value: All cash flows (in AND out) attributable to the customer, discounted to present value. Not just revenue as used in the article. If your sales (e.g. adwords) or support costs are at all significant, you can't ignore them.

I know it's easier to criticize than to write up a helpful article. I do applaud the blogger for taking the time to write about this, but can only recommend not using words like lifetime value to describe something else entirely.

Thanks for the comment!

Re Lifetime: Good point, this is value (or more precisely, revenue) to date.

Re Value: The post outlines the first step in deriving "true" value. The intent is to allow you to take the ltv as described & subtract the appropriate costs to find a net gain or loss.

Sorry for not being as thorough as I should have, I'll try to get an amendment from Paul.

Pleasure.

Here's an example to help illustrate:

    Discounted (future) revenues: $100
    Discounted (future) ongoing costs: $20
    Value: $80 ($100 - $20)
    Acquisition cost: $60 (e.g. adwords)
    Net Present Value (NPV): $20 ($80 - $60)

An NPV of $20 means you create $20 in value by acquiring a customer. That's what you were trying to say with "true" value / net gain or loss - but there's no such thing as "true" value - you're either working with value or you're not.

Note that revenue to date did not figure into any of the above - we're concerned with the future here, so the past is only useful in as much as it helps you with forecasting.

The wikipedia page on CLV is surprisingly good, have a look.

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