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[MUSIC]

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Welcome back.

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Let's get started with the second section
of our course, introducing churn and

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lifetime value analysis.

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LTV is an acronym that stands for
lifetime value.

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What does LTV mean?

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In very simple terms, it means how much
money we get from a particular customer.

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This is usually based on a type or segment
of customers, not an individual customer.

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LTV is the value of
a customer to our business

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over the lifetime of our
relationship with that customer.

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This is dollars and cents value,
not something intangible like

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the happiness we get after
seeing the customer everyday.

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That's definitely something wonderful
that we can value personally, but

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that's not typically something we try
to capture with LTV calculations.

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Let's explore some examples.

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Maybe we own a grocery store,
or stores, and

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are interested in determining what
an average customer's worth to us.

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Some people might just look at
individual transactions, but

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it's also meaningful to look at all the
transactions we have with an individual

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customer, or type of customer,
over their lifetime.

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Indeed, these are completely
separate things.

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The former is our average
transaction value across

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all our customer transactions.

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The latter is the sum of our
average customers transactions

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over their lifetime, or their LTV.

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Maybe by looking at the LTV's of different
customer groups we see that customers

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who are mothers spend $40 more per week
than our average student customer.

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Over the year,

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the average mom is worth $2,080 more
to us than the average student.

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That starts to add up if it
continues over the years.

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All else equal,
a customer's lifetime value,

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should increase over time as they
purchase more and more stuff from us.

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Let's talk about another example.

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A mobile phone plan.

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Perhaps we have a contractual
obligation of two years or

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maybe we pay month to
month with no lock in.

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With the contractual obligation, and

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assuming there is no option to cancel,
our mobile phone provider

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knows that we will have an LTV of
at least those two years of fees.

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In the month to month situation predicting
the LTV of the customer becomes

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more difficult because
the customer has the opportunity

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to stop paying the provider every month.

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In the contractual situation sure we
know we get at least two years, but

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how often do customers renew
at the end of those two years?

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Some of you may be wondering
how we define value here.

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Is it cash or revenue you collect
from a customer, or is it profit?

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Also, if LTV means the amount
of money we get from a customer

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over their lifetime of our
relationship with that customer,

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isn't that an ongoing potentially
always changing number?

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These are great questions, and we'll
unpack them in this section of the course.

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Now, if you're thinking to yourself right
now, Michael, what are you talking about?

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Don't worry if you're confused.

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Similar to section one, we're gonna
walk through several examples, and

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get you up to speed in no time.