Opinions

The Importance of LifeTime Value

Posted by Ben Wilkinson on October 10th, 2010 at 6:56 pm

Earlier this week I was involved in an interesting discussion discussion on Quora that I think is worth publicizing to the broader world (Quora is a new Q&A site started by former Facebook CTO Adam D'Angelo). You can read the full thread here (http://www.quora.com/What-is-a-Facebook-Like-worth-in-terms-of-Lifetime-Value-of-a-Customer-Better-said-what-is-the-monetary-value-of-a-Like-both-in-terms-of-customer-acquisition-costs-and-LTV). As a side note, I blogged about how to acquire new customers from Facebook here (http://blogs.imediaconnection.com/blog/2010/08/30/acquiring-new-customers-from-facebook/).

The question posted was as follows:

What is a Facebook "Like" worth in terms of Lifetime Value of a Customer? Better said, what is the monetary value of a "Like", both in terms of customer acquisition costs and LTV?
What is a Facebook "Like" worth in terms of Lifetime Value of a Customer? Better said, what is the monetary value of a "Like", both in terms of customer acquisition costs and LTV?
Studies show that e-mails for group-buying sites are worth $0.10-$0.25 per day in sales yet they cost $2-$3 to acquire via paid lead generation. Does anyone know what a "Like" is worth in terms of lifetime value of a customer and the corresponding cost to acquire a 'Like'? Is this data available??

In response, I posted the following answers:

as Andy said, the LTV of a like varies so greatly from company to company it would be erroneous for someone to even guesstimate at it without first having in-depth knowledge of your business. My suggestion would be to have your Analytics team to some research on the buying behavior of your facebook fans.

The poster of the question followed up with my comment with this:

Ben -- Any industry would benefit from this data. It's in same category as a back link, paid search listing, affiliate referral, etc. Each of these can be associated with CaC, why not the "Like"?

To which, I followed up with

Agree that any industry would benefit however the value of all you those things you mention vary from company to company, which means companies will spend more in areas where the LTV is greater and spend less in areas where the LTV is lower. The reason for this is not all companies convert their external traffic (affiliates, paid search, organic search, traffic from facebook) at the same rate. In fact, conversion rates from different sources of traffic inside one company can vary widely. That's why it's important to test, analyze, repeat. Facebook acquisition and lifetime value analysis is the same as any other acquisition channel.

The problem with assuming there is a set lifetime value to ANY acquisition channel is a fallacy of huge proportions. For example, let's say that you assume the LTV of facebook fan is $10. Based on that you run an advertising campaign on facebook, you acquire 500 new facebook fans, and those newly acquired facebook fans only spend $5 each with you. This is a HUGE issue as you assumed those fans would spend $10, when in reality, they spent 50% less. My guess is you might be in a little trouble with your boss.

The point of all this, as I mentioned in the quora thread, you need to test, analyze, make adjustments and test again. The point of any advertising campaign is to get the most amount of customers at the least amount of cost.

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