[Music] Welcome to FDC's Ecomm education block my name is Chad Bacchanal and I'm the Director of an alert set why might CRM today I want to share with you som thoughts on a topic that is often  controversial in our industry. It's one  of those topics that I know some of you  will agree with me on and some of you  will discourage rarely do I find a consensus agreement on this topic but  the hope is that when the video is over  you'll have a stronger understanding of  the subject. What is this controversial  subject? How to calculate customer lock  on value. I'll cover three methods  including the one that we found to be  the most accurate and recommend for our  clients. Why is this controversial? Well  first there are many ways to calculate  CLTV and the results you get can vary  dramatically with each method. Second no  business is the same, this obviously  complicates things when we're trying to  use a single measurement to evaluate  businesses with widely variant  attributes. With that let's jump into the topic: there are three different popular methods for calculating CLTV. Method one is the method we use to calculate CLTV  outline and is widely used by  businesses that have high customer  turnover or churn. This method leverages  gross revenue and cogs to determine  gross profit and divides that by the  unique customers. A unique customer is  most often identified by a unique email  address. For example if I have 1 million dollars  in gross revenue and [ __ ] of $40,000  returning a gross profit of nine hundred  and sixty thousand dollars. I have eight  thousand unique customers and therefore  the CLTV is a hundred and twenty dollars. It's a pretty straightforward  calculation but can be criticized for  simplicity. Method two has been around a  long time  and it's used quite a bit with several  industries but it's not widely accepted  by the subscription industry because of  its reliance on churn ratio. Churn ratio is a useful measurement but the common argument is that churn ratio has no  place in the CLTV calculation because it  adds in variability to a measurement and  ultimately muddies up the CLTV  calculation. This method uses the returning average  order or our AO / the turn ratio. For example let's say your RAO is $80  and your truth is 40%, this method is  going to calculate your CLTV to be $200. So this method is also very  straightforward but like method 1 it  also is often criticized for being too  simplistic. Method 3 is very popular it  is widely used across many different  industries but it's really meant for  companies that are cross them throughout  the customer lifecycle. Let's run through  this calculation once again we start  with our AO multiply gross margin with  an $80 our AO and a gross margin to 40%  we get a net REO of $48 then we consider  a 40% churn in a discount rate of 0%  this method leverages growth rate to  arrive at the same $120 of method wah so  then we are comparing apples to apples  as much as possible across all three  methods. Growth rate refers to the  customers growth rate during the  lifetime as a customer. If you're growing  a customer's value over time this is an  important number inside of the CLTV calculation the criticism of this method  is that it is too complex and it  leverages growth rate which is  speculative it can water down the CL TV  calculation. Now that we've reviewed all  three methods let's talk about why we use method 1 at Lime Light and why we think this is the right approach for  advertisers and subscription businesses. Method 1 is straightforward and while it  can be criticized for its simplicity it  gets praised for hosts customer lifetime analysis, accuracy mean that when we  analyze customers after that they have  cancelled the calculation often proves  to be more accurate we have analysed our  entire global transaction database  millions of  as actions over more than 10 years and  we still have found method one to be the  most accurate method for calculating CLTV. My goal and my life's goal is to stay on top of the industry and provide advertisers and e-commerce merchants the best analytics and revenue maximization tools for their businesses. My priority  is to stay up-to-date on the best  metrics and calculations specifically  for CLTV. I'm always looking for various  CL TV calculations and analyzing and  considering their merit for Limelight's clients so don't be surprised if in the  future we offer multiple methods to  calculate CL TV keeping a handle on all  the data and metrics of your business is  complex. Leveraging is sophisticated and  intelligent but relevant analytics is  how you can not only compete but scale. If you watch this video to this point you've been bitten by the bug and are most likely a data junkie like me. This curiosity is are you all what do you  think will happen if you can't get a  quick handle on where your business is  at at a moment's notice. I've been there  and it's scary it's a very scary thought that's where a solid analytics package comes in. Whether you are using the  solution that we developed at limelight  or you have your own homegrown bi  solution stay curious  and continue to fight the good fight my  goal and Limelight's goal is to equip  our clients with the best features  integrations and revenue maximization  tools and of course analytics to not  only stay on top of the industry but to  help you succeed that's why we continue  to work hard to build a flexible and  reliable CRM solution so you have all of  the information you need to make the  right decisions for your business. I'm Chad Bucknam, Director of Analytics at  one I wish you the best of luck growing  your business and achieving your dreams  [Music]

Chad Buckendahl

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