Lifetime Value, Caveat Vendor

Seth Godin urges businesses to consider the lifetime value of a customer, not just the value from the first sale (or indeed the latest sale).

Go and read it, it makes sense, but bear in mind his argument is based on a particular kind of product or service, one where lifetime value of a customer can be calculated with some value of reliability, and expending what seems like a disproportionate amount on acquisition or retention is a much safer bet.

If you’re serving a specific geographical area there is a limit to the amount of competition for that customer’s business that you face – a customer is by necessity more likely to be loyal. If your product naturally has some lock-in (like a mobile phone contract) then you can work out how much a customer is worth to you very easily. Barriers to entry (by competitors) or exit (for the customer) create an environment with a relatively low churn rate, a predictable level of repeat business and a limited number of other places for a customer to take their spending.

If however you’re an online merchant, selling a product you don’t have an exclusive on, your competition is almost infinite and made up of players with different agendas. Not everyone is motivated by the need to make a profit, their goal may be market share. If Amazon enter your niche, there’s every chance you’ll get wiped out, just as dedicated greengrocers and butchers shut down all over the UK as supermarkets expanded. Calculating that lifetime value has to be tempered with the likelihood that a lower priced competitor will take their business regardless of how much effort you put in.

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What’s the last Purple Cow you bought?

Seth Godin (and others) are always talking about being ‘remarkable’.

Given that we’re all susceptible to remarkable things and feel a need to share them so I thought I’d share my most recent purple cow with you.

That’s the exterior of the building our apartment is in. We moved home about a month ago and when we were looking at places to rent this one stuck out – literally. The bay window in the turret gives a 180 degree view and has great light for reading.

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