Exploring the Pitfalls of Relying on Lifetime Value (LTV)

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Exploring the pros and cons of relying on Lifetime Value (LTV) as a sole metric for business success, emphasizing the significance of also understanding Customer Acquisition Cost (CAC) for entrepreneurs. The chapter highlights Bill Gurley's 2012 essay critiquing the LTV methodology and its enduring relevance.

Episode 119: LTV, or lifetime value, has become the gold standard for startups, specifically how they measure the effectiveness of their various marketing channels. LTV does have merit, and it is a helpful proxy to prioritize marketing and understand the economics of each customer you acquire, but if relied on entirely, it can be misleading at best and harmful to your business at worst. I’ve found what I believe to be one of the best pieces on the internet about the challenges of this methodology, a 12-year-old essay by investing legend Bill Gurley that is as relevant today as it was then.

The Dangerous Seduction of the Lifetime Value (LTV) Formula: https://abovethecrowd.com/2012/09/04/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/

DTC Metrics, Explained: https://www.nasdaq.com/articles/dtc-metrics-explained-2020-02-12

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